NIGERIA DEVELOPMENT UPDATE  |  MAY 2025 Building Momentum for Inclusive Growth Nigeria Development Update May 2025 Building momentum for inclusive growth NIGERIA DEVELOPMENT UPDATE | MAY 2025 © 2025 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of the World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes, as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. ii BUILDING MOMENTUM FOR INCLUSIVE GROWTH Acknowledgements The Nigeria Development Update (NDU) is a World Bank report series produced twice a year that assesses recent economic and social developments and prospects in Nigeria, and places these in a longer-term and global context. The NDU also provides an in-depth examination of selected policy issues and medium-term development challenges in Nigeria. It is intended for a wide audience, including policy makers, business leaders, financial market participants, and the community of analysts and professionals engaged in Nigeria’s evolving economy. The report was prepared by a World Bank team led by Matheus Bueno (Economist) and Gloria Joseph- Raji (Senior Economist). The team included: Olawunmi Adelusi, Toluwase Adesina, Arya Iskender, Hadija Kamayo, Bertine Kamphuis, Priscilla Kandoole, Tina George Karippacheril, Samer Matta, Lilian Okpeku, Olumide Omoyele, Utz Pape, Dominik Peschel, Elizabeth Saint-Wonder, Alex Sienaert, Owen Smith, Aleksandar Stojanov, Carlos Vincente, and Vinay Vutukuru. The team is grateful for the ongoing collaboration with the Central Bank of Nigeria, the Federal Ministry of Finance, the Federal Ministry of Budget and Economic Planning, and the National Bureau of Statistics. The report was strengthened by review comments from Richard Record, Tamoya Christie, Brian Pinto, and from staff of the International Monetary Fund. The team also acknowledges Chinelo Akunyili, Pinar Baydar, Ifeoma Ikenye and Irene Sitienei for their administrative and operational support in the preparation of the report. External and media relations are managed by Mansir Nasir and Maryam Laushi. Chuka J. Agu worked on the design. The report was prepared under the overall supervision of Ndiame Diop (Former Country Director for Nigeria), Abebe Adugna (Regional Director for Prosperity), and Sandeep Mahajan (Practice Manager for Economic Policy). The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. For questions about this report please email mbueno@worldbank.org, and gjosephraji@worldbank.org. For information about the World Bank and its activities in Nigeria, please visit: www.worldbank.org/ng. Cover photo is AI generated. It aims to depict a story of building momentum iii NIGERIA DEVELOPMENT UPDATE | MAY 2025 Abbreviations and Acronyms BDC Bureau De Change BHCPF Basic Healthcare Provision Fund BIRs Budget Implementation Report BPS Basis Points BVN Bank Verification Number CAB Current Account Balance CAPEX Capital Expenditure CAR Capital Adequacy Ratio CBN Central Bank of Nigeria CDF Capital Development Fund CET Common External Tariffs CGCs Credit Guarantee Companies CPI Consumer Price Index CRF Consolidated Revenue Fund CRR Cash Reserve Ratio DFIs Development Finance Institutions DFS Digital Financial Services ECA Excess Crude Account ECOWAS Economic Community of West African States EFEMS Electronic Foreign Exchange Matching System EMDEs Emerging Market and Developing Economies ETMs Energy Transition Minerals FAAC Federal Account Allocation Committee FCT Federal Capital Territory FDI Foreign Direct Investment FGN Federal Government of Nigeria FIRS Federal Inland Revenue Service FPI Foreign Portfolio Investment FX Foreign Exchange GDP Gross Domestic Product GOEs Government Owned Enterprises ICCPC Independent Corrupt Practices and Other related Offences Commission ICT Information and Communication Technology LDR Loan-to-Deposit Ratio mbpd Million barrels per day MDAs Ministries, Departments, and Agencies MFBs Microfinance Bank iv BUILDING MOMENTUM FOR INCLUSIVE GROWTH MPR Monetary Policy Rates MSMEs Micro, Small and Medium Enterprises MTEF-FSP Medium Term Expenditure Framework and Fiscal Strategy Paper NAICOM National Insurance Commission NBS National Bureau of Statistics NCC Nigerian Communications Commission NCS Nigeria Customs Service NDIC Nigeria Deposit Insurance Corporation NDU Nigeria Development Update NEDC North-East Development Commission NGN Nigerian Naira NGX Nigerian Exchange Group NMDPRA Nigerian Midstream and Downstream Petroleum Regulatory Authority NPLs Non-Performing Loans NSW National Single Window NUPRC Nigerian Upstream Petroleum Regulatory Commission OMOs Open Market Operations OPEC Organization of the Petroleum Exporting Countries PENCOM National Pension Commission PFM Public Financial Management PMS Premium Motor Spirit PPG Public and Publicly Guaranteed Debt SDF Standing Deposit Facility SEC Securities and Exchange Commission SLF Standing Lending Facility UBEC Universal Basic Education Commission VAT Value Added Tax YoY Year-on-Year v NIGERIA DEVELOPMENT UPDATE | MAY 2025 Table of Contents Acknowledgements iii Abbreviations and Acronyms iv List of Figures vii List of Tables viii List of Boxes viii Overview ix PART 1: Recent economic developments and outlook for Nigeria 1 1.1 Economic growth has picked up, but remains moderate and uneven 2 1.2 The monetary policy stance has remained tight to rein in high, sticky inflation 4 1.3 Economic growth, low inflation, and social protection are key to combatting the cost-of-living crisis 6 1.4 The external position has continued to improve, including through FX reforms 6 1.5 The financial sector remains shallow, albeit healthy 9 1.6 The fiscal situation improved, driven by a surge in revenues 11 1.7 The economic outlook is cautiously optimistic for Nigeria 19 PART 2: A reform agenda for boosting inclusive growth in Nigeria 22 2.1 The urgency of inclusive growth 23 2.2 A two-part agenda for achieving rapid, inclusive growth 25 2.3 Building an empowering public sector 28 2.4 Enabling private sector development 29 2.5 Reform implementation, starting with an inclusive growth plan 36 References 42 Annex 44 List of Figures Figure O. 1. A snapshot of recent economic developments in Nigeria xi Figure 1.1: Economic activity has increased, especially in services… 3 Figure 1.2 :… driven by the financial and ICT industries… 3 Figure 1.3 … and supported by an improvement in oil production 3 Figure 1.4: High frequency business activity indicators point to an expansion in early 2025 3 Figure 1.5: The inflation surge has started to recede after price corrections… 4 Figure 1.6: … but assessing inflation dynamics in early 2025 is complicated by the CPI rebasing 4 Figure 1.7: Longer market rates are better anchored to the policy rate… 5 Figure 1.8: … but short-term rates are still not at MPR, given liquidity management constraints 5 Figure 1.9: FX reforms have eliminated the parallel premium, and the exchange rate has been more stable… 7 Figure 1.10: …but the FX market is still dependent on FPI and CBN flows 7 Figure 1.11: Imports compressed in 2024… 8 vi BUILDING MOMENTUM FOR INCLUSIVE GROWTH Figure 1.12:…. contributing to a higher current account balance 8 Figure 1.13: FX and monetary reforms attracted higher FPI inflows 8 Figure 1.14: FX reserves increased in 2024 along with CAB and FAB surpluses, though declining in 2025 8 Figure 1.15: Higher yields increased credit to the government by the banking sector … 9 Figure 1.16: … while credit to the private sector reverted its early year growth in 2024 9 Figure 1.17: The credit market in Nigeria is still underdeveloped … 10 Figure 1.18: … and market capitalization is modest 10 Figure 1.19: Exceptionally high CRR level reduces the pool of resources available for bank lending, limiting financial intermediation 11 Figure 1.20: The Federal Government’s fiscal position improved in 2024 12 Figure 1.21: FGN revenues surged in 2024 thanks to the FX unification and improved revenue administration13 Figure 1.22: : FGN spending increased slightly due to a higher wage bill and new spending such as the presidential 13 Figure 1.23: On aggregate, the fiscal situation of Nigerian states improved in 2024… 14 Figure 1.24:.… albeit with significant variation with some states doing better than others 14 Figure 1.25:. Revenues of all Nigerian states increased due to a surge in FAAC inflows 16 Figure 1.26:. Large infrastructure gaps prompted states to use the revenue windfall and increase spending on capital-intensive sectors 18 Figure 2.1:. Nigeria’s youth population is burgeoning… 24 Figure 2.2:. … and will enormously enlarge the working age population in coming decades 24 Figure 2.3: In the decade to 2023, value-added generally increased more slowly than the number of workers… 24 Figure 2.4: …resulting in declining productivity in most sectors and in the economy as a whole 24 Figure 2.5 :. Nigeria spends far too little on development priorities 27 Figure 2.6: The macroeconomic reforms have strengthened Nigeria’s external position… 27 Figure 2.7: …but non-oil exports remain low 27 Figure 2.8:. Businesses face high constraints to investment… 30 Figure 2.9: …and weak competitive pressure 30 Figure 2.10: Market integration is markedly low, constraining businesses and regional development 31 Figure 2.11: Access to power is similarly limited, as well as unreliable 31 Figure 2.12: Domestic credit to the private sector is lower than peers… 32 Figure 2.13: ...while FDI is low and falling; increasing it would boost investment and innovation, and so, growth and jobs 32 Figure 2.14: Businesses are shielded against competition… 33 Figure 2.15: … including from foreign firms, which also increase input prices 33 Figure 2.16:. Import bans increase prices by 5.8 percent on average and apply to products more intensely consumed by the poor 34 Figure 2.17:. Tariff deviations from the ECOWAS CET are also particularly large and increase food prices 34 Figure 2.18: Import bans also increase evasion, lowering customs revenues by at least 10 percent 35 Figure 2.19: Similarly, goods subject to higher tariffs see more evasion, and removing these could increase customs revenues by 66 percent 35 vii NIGERIA DEVELOPMENT UPDATE | MAY 2025 List of Tables Table O. 1: A reform agenda for inclusive growth in Nigeria xv Table 2. 1:. Comprehensive and ambitious reforms have substantially accelerated investments and growth across countries 27 Table 2. 2: A reform agenda for inclusive growth in Nigeria 37 List of Boxes Box 1. 1 :. Gross FAAC revenues surged in 2024, but a large share was deducted and remitted back as revenues to states and local governments 15 Figure B1.1:. Gross revenue collected through FAAC surged in 2024 16 Figure B1.2:. The PMS subsidy has been eliminated since October 2024… 17 Figure B1.3:. … as a result, NNPCL arrears have decreased 17 Figure B1.4 :. 43.4 percent of gross revenues were deducted… 17 Figure B1.5: …benefiting mainly the states 17 viii BUILDING MOMENTUM FOR INCLUSIVE GROWTH unchanged to help combat price increases. Inflation Overview is expected to fall to an annual average of 22.1 percent in 2025, as a sustained tight stance firmly establishes monetary policy credibility and dampens Since the last edition of the Nigeria Development inflationary expectations. Update (NDU) in October 2024, economic Recent reforms have also helped to consolidate developments in Nigeria have been broadly the foreign exchange (FX) market under a market- positive, helped by the government staying reflective, stabler naira, as well as to strengthen the course in maintaining an appropriate Nigeria’s external position. FX market transparency macroeconomic policy mix. Now, the challenge is was helped by the adoption in December 2024 of a to consolidate macroeconomic stability and ignite new trading system in the official market, advancing inclusive growth through deeper, wider structural the recent policy overhaul. Nigeria’s external position reforms. has strengthened, as the higher exchange rate Part 1 of the NDU provides a summary of recent compressed imports and boosted foreign portfolio economic developments in Nigeria and updates investment (FPI). The current account surplus the outlook through 2027. surged by 185 percent to US$17.2 billion in 2024 (9.2 percent of GDP), and the surplus is expected to Growth has increased. Real GDP increased by 4.6 be maintained in the medium term, depending on percent year-on-year in Q4 2024, pushing growth the future course of global oil prices. Gross official for the full year 2024 to 3.4 percent, the highest reserves fell from their recent peak of US$40.9 since 2014 (excluding the 2021-2022 COVID-19 billion in December 2024, to US$37.9 billion rebound). The economic acceleration was on the at end-April 2025, partly due to the CBN exiting back of a continued recovery in the oil and gas sector, legacy FX liability positions. Yet, reserves remain and, especially, strong growth in services, notably significantly higher than the recent low in May 2024 information and communication technology (ICT) of US$32.5 billion. Importantly, the disclosure of and finance. Agricultural sector growth was weak at the long-awaited net external reserves position, at only 1.2 percent in 2024, held back by high input US$23.1 billion in end-2024, up from US$4 billion costs and insecurity. Real GDP growth is expected to a year earlier, should boost confidence on Nigeria’s be mildly higher in 2025 at 3.7 percent, 1.6 percent external liquidity. in per capita terms. Nigeria’s consolidated fiscal position improved Inflation has remained high and sticky, and the in 2024, driven by surging revenues that largely Central Bank of Nigeria (CBN) has kept monetary benefited subnational governments. At the level policy appropriately tight in response. Entrenched of the Federation (i.e., consolidated government, inflationary expectations after a prolonged period including the Federal Government of Nigeria of high inflation and inflation inertia are apparent1. [FGN], Federal Capital Territory [FCT], States and Gauging inflation dynamics in early 2025 is difficult, Local Governments), the fiscal deficit shrank from given the consumer price index (CPI) rebasing, but 5.4 percent of GDP in 2023 to 3.0 percent of GDP price pressures remain high. The last Monetary in 2024. This significant improvement was driven by Policy Committee meeting of the CBN, in February a sharp increase in revenues of the entire Federation, 2025, appropriately kept the monetary policy stance which rose from N16.8 trillion in 2023 (7.2 percent 1 See Box 1.2 in the October 2024 NDU. ix NIGERIA DEVELOPMENT UPDATE | MAY 2025 of GDP) to an estimated N31.9 trillion in 2024 (11.5 Risks to the outlook are largely tilted to the percent of GDP). This surge followed the removal of downside. Domestically, these include political the implicit FX subsidy, improved tax administration, considerations as the 2027 general elections and reforms that enhanced the transparency and draw closer and potential social tensions which accountability of parastatal revenue remittances. could weaken reform impetus and jeopardize Nigeria’s overall debt burden remains moderate, as recent advances; unfavorable weather shocks; the increase in public debt to about 53.2 percent of rising insecurity in farming areas; and setbacks GDP in 2024—driven by FX revaluation effects— in oil production. Globally, negative impacts of was counterbalanced by a continued improvement international trade and geopolitical shifts could in the debt service-to-revenue ratio, which declined also weigh on the outlook. Heightened uncertainty from 100 percent in 2022 to below 40 percent in could tighten financial conditions as well as lower 2024 due to the sharp rise in revenues. oil prices, and, accordingly, oil exports and revenues. This in turn could negatively affect fiscal and external The fiscal outlook remains cautiously optimistic balances. While the economy may cushion some but hinges on the necessary consolidation of of these impacts through a flexible naira acting as recent advances. First, it is essential to ensure that a shock absorber, sustained resilience will require the full revenue gains from the removal of the PMS more than macroeconomic stabilization alone. The subsidy—estimated at about 2.6 percent of GDP in government should not only stay the course on 2024—are transferred to the Federation. Despite macroeconomic stabilization but also make progress the subsidy being fully removed in October 2024, on implementing a bold structural reform agenda. NNPCL started transferring the revenue gains to At the same time, addressing pressing social and the Federation only in January 2025. Since then, it humanitarian challenges remains critical to ensuring has been remitting only 50 percent of these gains, inclusive and sustainable growth. using the rest to offset past arrears (see Box 1.1). Resolving any remaining net arrears and channeling Improving macroeconomic stability offers the full benefits of subsidy reform to the Federation a launching pad to ignite inclusive growth. is critical for sound fiscal management. Second, close Overall, recent economic developments (Figure monitoring of the 2025 budget implementation O.1), including the uptick in growth and is essential, as it has overly ambitious revenue improvements in Nigeria’s fiscal and external assumptions and may lead to a larger-than- positions, provide encouraging indications that the anticipated fiscal deficit. The budget aims to boost difficult macroeconomic reforms undertaken by the government since 2023 are starting to pay off. capital spending, and this must be done sustainably, Nevertheless, the economy is yet to shift decisively within the broader objective of fiscal consolidation into a higher gear, and it must generate more and to complement monetary policy and achieve an better jobs at scale and reduce poverty. overall policy mix that maintains fiscal discipline and brings down inflation. Third, sustained efforts Part 2 of this edition of the NDU assesses how to enhance expenditure efficiency and transparency to build on the progress being made towards are crucial to maximizing development outcomes. macroeconomic stability. It describes the scale This responsibility lies not only with the Federal of Nigeria’s inclusive growth challenge and offers Government, but especially with states, which now reform suggestions which could help make receive more revenue (N13.8 trillion in 2024) than 2025 a break-out year for Nigeria’s economic the Federal Government (N12.3 trillion). performance. x BUILDING MOMENTUM FOR INCLUSIVE GROWTH Figure O. 1. A snapshot of recent economic developments in Nigeria A. Growth has risen to its fastest pace since 2014 B. …on the back of strong growth in services and a (excluding the COVID-19 rebound) … recovery in the oil sector Real GDP growth (%) Contributions to GDP growth (%, 15 p.p.) 10 5 5 0 3 -5 -10 1 -15 -20 -1 -25 -3 14 15 16 17 18 19 20 21 22 23 24 15 16 17 18 19 20 21 22 23 24 1- 1- 1- 1- 1- 1- 1- 1- 1- 1- 1- Q Q Q Q Q Q Q Q Q Q Q 20 20 20 20 20 20 20 20 20 20 Year-on-year Agriculture Industry - oil Quarter-on-quarter (seasonally-adjusted, Industry - non-oil Services annualiz ed) Net indirect taxes GDP Sources: NBS; Haver Analytics Notes: “Industry – oil” comprises crude petroleum and gas production (mining), and oil refining (manufacturing) Source: NBS C. However, inflation remains high and sticky… D. …although its dynamics are difficult to evaluate in early 2025 given CPI rebasing CPI (month-on-month, annualized rate, %) CPI Weights (Old vs New, %) 70 Food And Non-Alcoholic 60 Bever ages 57.5 Restaur ants and 50 Accommodation Ser vices 40 Tr anspor t Housing, Water , 30 Electricity, Gas and… 27.4 20 Education Services 10 Other s 0 0 20 40 60 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25 Jul-18 Nov-18 Jul-19 Nov-19 Jul-20 Nov-20 Jul-21 Nov-21 Jul-22 Nov-22 Jul-23 Nov-23 Jul-24 Nov-24 New Old Sources: NBS Sources: NBS xi NIGERIA DEVELOPMENT UPDATE | MAY 2025 E. The surge in revenues improved the consolidated F. The naira has been more stable, and gross foreign fiscal position in 2024 reserves rose substantially, from their recent low in May 2024 Consolidated fiscal position of Nigeria Gross External Reserves (US$' 16 (% of GDP) billion) 14 44 3.0 12 42 40 10 5.4 6.3 5.0 4.4 38 8 36 6 34 4 32 2 30 2020 2021 2022 2023 2024 Feb-21 Jul-21 Jan-24 Jun-24 Apr-20 Sep-20 Dec-21 Ma y-22 Oct-22 Aug-23 Nov-24 Apr-25 Ma r-23 Fiscal deficit Spending Revenues Sources: OAGF, BIRs, DMO, World Bank. Sources: CBN The pace of growth in Nigeria needs to accelerate electricity subsidies, rather than towards enhancing further to meet its aspirations and deliver poverty access to and quality of public infrastructure and reduction and shared prosperity. The economy essential services. As a result, most Nigerians remain would need to grow at a rate about five times higher underemployed and trapped in low productivity, than recently to achieve a US$1 trillion economy by low earning, subsistence farming or informal sector 2030, the government’s aspiration2. To move towards work3. meeting this aspiration, the composition of growth To boost inclusive growth, the government could needs to be rebalanced to those economic sectors consider a private-sector led, public sector- and firms that are most productive, generate positive facilitated growth strategy. spillovers, and create jobs and opportunities at scale, especially for the poor and economically insecure. At With fiscal space created through recent macro- present, the best-performing sectors of the economy, fiscal reforms, Nigeria now has a historic like finance and ICT, while important as drivers of opportunity to improve the quality of spending growth, are not sources of mass employment, and the and invest in human capital, social protection, vast majority of Nigerians do not have yet the skills and infrastructure. The allocation of public and opportunities to participate in them. At the resources can begin to shift away from the past same time, government spending has until recently unsustainable, regressive, and wasteful pattern, and also been skewed towards the better off segments of rather towards meeting Nigeria’s large development the population, including through the unsustainable, needs, including the government playing its essential costly, and highly regressive PMS, implicit FX, and enabling role of providing basic public services 2 Based on 2024 GDP as currently estimated and assuming no change in the exchange rate. 3 See Part 2 of the October 2024 edition of the NDU for more details on jobs and inclusion. xii BUILDING MOMENTUM FOR INCLUSIVE GROWTH directly or indirectly. In addition to redirecting • First, addressing major infrastructure spending to better tackle Nigeria’s key development gaps, such as in electricity and transportation is priorities (i.e., improve allocative efficiency), there key, as these are consistently cited by firms as major is also scope to make each naira spent on achieving constraints. Large areas remain poorly connected to a given development objective more impactful (i.e., major economic centers via roads, inhibiting business improve technical efficiency). To use scarce revenues growth, as well as regional and sectoral development. efficiently, the country must resist politically driven Access to a reliable electricity supply is similarly budget padding and opaque allocations in favor of restricted. The government faces large and growing provision of quality education, health, and a robust, payments owing to power distribution companies institutionalized social safety net. The recent rise for tariff shortfalls (N2.1 trillion as of end-2024), in capital expenditure allocations can help to plug constituting a remaining highly regressive subsidy, Nigeria’s large infrastructure gaps, as long as it is benefiting mainly large consumers in a context coupled with overall fiscal discipline and sound where most households remain unconnected to public investment management practices. the grid. This calls for comprehensive reform to break out of the current situation of expensive tariff The public sector should also be an enabler of shortfalls for the government, combined with poor private sector–led growth by fostering a conducive service provision for electricity consumers, and environment and setting the right incentives low investment in the sector. To help close gaps in for business to grow. International experience other hard infrastructure, such as roads, providing suggests that the public sector cannot sustainably a unified, clear, and well-defined public private generate growth and jobs by itself. Nigeria is no partnership (PPP) legal and regulatory framework exception, particularly since public resources remain could help increase private investments. Measures to constrained, and dramatically scaling up spending, strengthen public investment management (PIM) even if this could be done efficiently by overcoming could also improve public spending efficiency on institutional capacity challenges, would counteract infrastructure. efforts to stabilize fiscal balances and reduce inflation. A more rewarding strategy is to position the public • Second, fostering healthy competition, sector as an enabler for the private sector to invest, market openness, and improving the business innovate, and grow the economy. Reforms to environment will spur business dynamism. Many establish a conducive, neutral policy and regulatory Nigerian markets lack contestability and display framework can provide both the conditions and the a high degree of concentration, weakening the impetus for business to thrive and generate jobs. These competitive incentives to invest, grow, and generate reforms would also reduce the space for entrenched more and better jobs. A stronger and independent incumbents to steer regulation and public spending competition authority (the Federal Competition to their own advantage, and allow the government and Consumer Protection Commission, FCCPC) to focus on development priorities. Spending on could help ensure healthy competition in the development priorities can initiate a virtuous cycle market. Similarly, lifting barriers for foreign firms of creating the conditions for stronger private sector to operate in Nigeria, such as the requirement to growth, enlarging the “revenue pie”, which in turn incorporate a domestic business, would both foster enables sustained development spending. competition and raise FX inflows and foreign direct investment (FDI), which is much lower than in Critical reforms can enable existing and new firms peer countries. Further, a competitive exchange to thrive across the economy: rate offers an opportunity for domestic firms to xiii NIGERIA DEVELOPMENT UPDATE | MAY 2025 export. Reducing tariffs and lifting import bans (DFIs), credit guarantee companies (CGCs), and would not only help lower prices for Nigerians and finance companies (FCs) will help to enable credit alleviate the cost-of-living crisis but also allow firms to underserved segments like MSMEs. To enable to better access imported intermediate products, access to long-term finance from capital markets, a produce more, and plug into global value chains. review of the listing rules, requirements, timing and Trade facilitation measures, including removal of costs, as well as development of tailored financial mandatory pre-shipment inspections of exports, instruments such as securitization of receivables, implementation of the National Single Window MSME debt funds and specialized bonds can also (NSW) and risk-based border management, as well help. as an enhanced National Quality Infrastructure (NQI) System, would have similar effects. Just as • Fourth, improving specific policies can with exporting, domestic integration would allow help unleash the potential of important sectors. firms to reach new markets, source inputs, and reap Agriculture, with its vast productive potential economies of scale. Beyond improving transport and importance in providing livelihoods and infrastructure, the removal of inter-state fees related opportunities, can help create jobs, address food to the movement of cargo and unnecessary, often insecurity, and diversify from oil. Improved policies illegal roadblocks could reduce the high cost of could help, for example, ease market access to domestic trade and delays in inter-state movement inputs like fertilizer, improve seed quality, foster of cargo. Finally, effective implementation of the partnership between farmer cooperatives and the Business Facilitation Act (2022), and similar efforts private sector along value chains, and develop digital in the states, can improve the climate in which farmer and farm registries. The energy sector, facing businesses operate. a significant supply constraint, can benefit from regulatory changes to support investments in solar • Third, improving access to finance is power and distributed renewable energy. Digital essential for new and existing firms to grow services can further boost sector productivity by and improve productivity. Staying the course setting standards for electronic transactions, digital on macro-stabilizing policies will lower inflation, records management, online consumer protection, government financing needs, and credit costs, and cross-border digital trade facilitation, along freeing up capital for the private sector. Recalibrating with improvements in broadband infrastructure part of the monetary policy implementation markets regulations. framework can also free resources for private sector financing. Regulatory improvements, such Table O.1., summarizes a suggested reform agenda, as those to facilitate the activities of microfinance described in Part 2, for building on macroeconomic banks (MFBs), development finance institutions stabilization towards fast, inclusive growth. xiv BUILDING MOMENTUM FOR INCLUSIVE GROWTH Table O.1: A reform agenda for inclusive growth in Nigeria GOAL RATIONALE REFORMS 1. Building an Empowering Public Sector 1.1. Improve macro-fiscal policy and institutions Consolidate monetary, Inflation is still high, hurt-• Maintain a tight monetary policy trade, and FX policy re- ing especially the poor, and stance until a sustained disinflation forms weighing on consumption path is achieved and investment • Further strengthen the monetary poli- cy implementation framework • Phase out import bans and align tariffs to ECOWAS common external tariffs, beginning with food products • Implement the AfCFTA agreement and its protocols Improve public finance Revenues are still low, • Ensure that revenue gains from the management constraining development removal of the PMS subsidy flow to spending the Federation • Launch and implement the tax E-in- voicing system • Launch and implement a centralized risk-based tax audit selection system • Improve excise tax administration by implementing a track and trace system • Adopt a new framework for health tax- es which raises the rates and strength- ens excise administration • Reform the VAT regime • Reduce the cost of collection of reve- nue agencies Fiscal flows and the overall • Publish reconciled monthly fiscal re- fiscal position remain opaque ports and quarterly budget implemen- tation reports on time • Clear the backlog of audited financial statements for 2021-2023 • Publish raw FAAC data and docu- ments from all agencies • Improve transparency in accounting for oil revenues by conducting a fo- rensic audit of NNPCL, and adopting standardized reporting to FAAC xv NIGERIA DEVELOPMENT UPDATE | MAY 2025 GOAL RATIONALE REFORMS Weak cash management • Ensure that all debt proceeds are reduces transparency and directly transferred to the Consolidated raises fiscal risks Revenue Fund • Complete TSA implementation to establish a consolidated daily view of the fiscal position Debt management would • Institutionalize annual borrowing plans benefit from being more • Institutionalize a Liability Management transparent and predictable Operations Framework • Publish quarterly debt reports and yearly DSAs 1.2. Spending better on development priorities: human capital, social protection, and infrastructure Improve human capital Low spending and efficiency • Shift spending towards spending on gaps on human capital basic education, primary health care, development hinder nutrition, and infrastructure, while Nigerians to fully realize ensuring that spending efficiently their capabilities and escape translates into improved outcomes poverty traps Improve social protection With more than half of the • Rapidly roll out the already initiated population below the poverty cash transfers line, poor and economically • Reallocate a share of recent revenue insecure households need gains to targeted social assistance assistance to regain economic • Make up-to-date social registries agency and cope with shocks with verified digital identification the platform for targeting pro-poor social programs Improve infrastructure Enhancing infrastructure • Move towards eliminating the access and quality needs more electricity subsidy, whilst protecting and better public investment poor households, to make room for investments in the sector • Strengthen Public Investment Management xvi BUILDING MOMENTUM FOR INCLUSIVE GROWTH GOAL RATIONALE REFORMS 2. Enabling Private Sector Development 2.1. Providing a conducive environment and the incentives for business to grow and create jobs Facilitate private investment Private sector participation • Adopt a unified PPP legal and in infrastructure in infrastructure provision regulatory framework is key to overcome fiscal • Develop enabling regulations for constraints and improve distributed and connected PV investment efficiency generation • Increase the mini-grid permit cap from 1 MW to 5 MW Increase business dynamism An unlevel playing field • Lift requirement for foreign firms to and investment and barriers to foreign firms incorporate as Nigerian legal entities contribute to high market when entering the country concentration and limited • Implement the Business Facilitation contestability, weakening Act (2022) the incentives to invest and • Strengthen capacity and independence create jobs of the competition authority (FCCPC) Expand foreign market Limited access to large • Remove mandatory pre-shipment access product and input markets inspections on exports restricts businesses’ • Implement the National Single competitiveness and growth Window and risk-based border management • Enhance the National Quality Infrastructure system Increase access to finance Access to finance to the • Update the regulatory and supervisory private sector is low and guidelines for MFBs, DFIs, CGCs, hinders investment, and FCs including for MSMEs • Review the rules, requirements, timing and costs for listing on the stock exchange • Develop tailored financial instruments such as securitization of receivables, MSME debt funds and specialized bonds xvii NIGERIA DEVELOPMENT UPDATE | MAY 2025 GOAL RATIONALE REFORMS Increase access to fi- Access to finance to the pri- • Update the regulatory and supervisory nance vate sector is low and hinders guidelines for MFBs, DFIs, CGCs, and investment, including for FCs MSMEs • Review the rules, requirements, timing and costs for listing on the stock ex- change • Develop tailored financial instruments such as securitization of receivables, MSME debt funds and specialized bonds 2.2. Unleashing the potential of important sectors Modernize and Expand Agricultural productivity has • Ensure effective implementation of the Agriculture declined, and the sector has reforms envisaged under the National not transitioned to off-farm Agricultural Seeds Council Act (2019) agribusiness and the National Fertilizer Quality Control Act (2019) • Ensure that farmers, farmer organiza- tions and the private sector are connect- ed along value chains • Develop digital farmer and farm regis- tries and increase certification capacity • Improve extension service delivery by scaling up both private sector and com- munity driven models in addition to public sector extension • Foster stronger partnerships between commercial banks and MFBs with FinTech companies to reduce risks and transaction costs through data and tai- lored solutions • Following the cessation of the CBN’s development finance interventions, pro- vide guidance to the financial industry on market-led agricultural credit and encourage the adoption of customized lending instruments for farmers and processors • Expand availability of risk sharing mechanisms to derisk and advance lend- ing to farmers and agri-businesses xviii BUILDING MOMENTUM FOR INCLUSIVE GROWTH GOAL RATIONALE REFORMS Develop the digital ser- Digital services could increase • Adopt a National Digital Economy and vices industry productivity and raise incomes, E-governance Bill especially with a young, En- • Lower investments costs and facilitate glish-proficient population green field telecom infrastructure de- ployments through implementation of the National Economic Council (NEC) commitment to a maximum of N145 per meter rights of way (Row) fees on State level • Strengthen the Nigerian Communica- tions Act to require NCC to conduct market analysis and enforce regulatory safeguards towards dominant operators • Execute and monitor the Designation and Protection of CNII Order, des- ignating telecom networks as critical national infrastructure xix PART 1: Recent economic developments and outlook for Nigeria NIGERIA DEVELOPMENT UPDATE | MAY 2025 Part 1 of this NDU reviews recent economic 2024 year to 1.2 percent, still significantly below its developments and outlook, focusing on the potential. The sector faces structural challenges such period since the last edition, in October 2024. Bold as high costs of imported inputs and machinery macroeconomic reforms have started to bear fruit. due to high tariffs and import bans (compounded Output growth has picked up, improved monetary in 2024 by the higher exchange rate), insecurity in policy is contributing to contain inflation, foreign production regions, limited access to finance, lack exchange (FX) reforms resulted in a market-reflective, of market integration and storage infrastructure more stable and competitive naira, and the revenue- resulting in high spoilage rates, as well as extreme driven fiscal consolidation has advanced considerably. climate events, such as flooding. Nevertheless, inflation remains high and sticky, • Non-oil industry growth was weak, at 1.4 economic growth is not yet strong and broad-based percent in 2024, the same rate as in 2023. Structural enough to substantially improve Nigerians’ living constraints such as the high price and limited standards, and, although the economic outlook availability of imported inputs, limited access to is cautiously positive, risks are especially high. It credit, unreliable electricity, and high internal trade is crucial to stay the course on macroeconomic and transportation costs, continue to limit growth reforms, consolidate recent advances, and further also in the manufacturing sector. improve the macroeconomic policy framework. Part • The Crude Petroleum and Natural Gas 2 discusses how to capitalize on the macroeconomic industry grew for the first time since 2019, reforms to rebuild competitiveness, reignite growth, with output increasing by 5.5 percent in 2024. and promote inclusiveness. Production of crude oil and condensates averaged 1.6 million barrels per day (mbpd) in 2024, 7.4 1.1 Economic growth has picked percent higher than in 2023. In the first two months up, but remains moderate and of 2025, production averaged 1.7mbpd, the highest uneven in about four years (Figure 1.3). • The service sector continued to be the main Economic activity has picked up in 2024, driven growth driver, expanding by 4.7 percent in 2024 by selected services and aided by a recovery in and contributing to over half of GDP growth. oil production. Output growth rose in Q4 2024 Services activity accelerated in Q4 2024, growing by to 4.6 percent year-on-year (YoY), up from 3.2 in 5.4 percent YoY, up from 4.0 percent in Q4 2023. Q4 2023, bringing full-year 2024 growth to 3.4 The sector continued to benefit from the expansion percent, up from 2.9 percent in 2023. Net indirect in financial and ICT services. The financial sector taxes contributed 0.8 percentage points (pp) to the grew by 30.9 percent in 2024, aided by high interest growth rate, mainly reflecting the full removal of rates and partly realized exchange rate revaluation. the premium motor spirit (PMS, gasoline) subsidy ICT continued to be supported by the strong voice in Q4 2024, but value added also grew faster than and data services demand. before. Growth continued to be led by services, notably financial and ICT services, and benefited Moving into 2025, improved macroeconomic from a significant recovery in the oil sector (Figure policies have supported an increase in business 1.1, Figure 1.2). Sectoral-specific performance is activity. Stanbic’s purchasing managers index (PMI) discussed below: rose from 46.9 in October 2024, which indicates • Agriculture grew marginally, by 1.8 percent a contraction, to 54.3 in March 2025, signaling in Q4 2024 YoY, taking output growth for the full an expansion in business activity. Similarly, CBN’s 2 PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH Figure 1.1: Economic activity has Figure 1.2 :… driven by the financial and increased, especially in services… ICT industries… Contributions to GDP growth (%, pp) Services contributions to GDP growth 5 6 4 5 3 4 2 3 1 2 1 0 0 -1 -1 -2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2023 2023 2023 2023 2024 2024 2024 2024 2023 2023 2023 2023 2024 2024 2024 2024 Other services Agriculture Oil Industry ICT Non-oil Industry Services Financial and Insurance Net Indirect Taxes GDP growth GDP growth Notes: “Oil Industry” comprises crude petroleum and gas Sources: NBS production, and oil refining. Source: NBS Figure 1.3 … and supported by an Figure 1.4: High frequency business improvement in oil production activity indicators point to an expansion in early 2025 Crude oil production (million barrels Purchasing Managers Index per day - average) 66.0 2.0 63.0 60.0 1.8 57.0 1.6 54.0 1.4 51.0 1.2 48.0 1.0 45.0 0.8 42.0 39.0 0.6 36.0 0.4 33.0 0.2 Feb-25 Feb-24 Jun-24 Jul-24 Jan-25 Apr-24 Ma y-24 Aug-24 Sep-24 Oct-24 Nov-24 Dec-24 Ma r-25 Ma r-24 - 2020 2021 2022 2023 2024 Crude condensates Stanbic PMI Expansion threshold Crude Oil Production (without condensates) CBN Composite PMI Sources: OPEC, NUPRC Sources: Stanbic, CBN Note: A Purchasing Managers Index (PMI) value above 50 indicates economic expansion, and below 50 an economic contraction. PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA 3 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Figure 1.5: The inflation surge Figure 1.6: … but assessing inflation has started to recede after price dynamics in early 2025 is complicated corrections… by the CPI rebasing Inflation components (% y-o-y) CPI Weights (Old vs New, %) 45 40 Food And Non- 35 Alcoholic Beverages 30 Restaurants and Accommodation… 25 20 a nsport Tr 15 Housing, Water, 10 Electricity, Gas and… 5 Education Services Ap r-23 Oct-23 Ap r-24 Oct-24 Feb-23 Jun-23 Feb-24 Jun-24 Dec-22 Aug-23 Dec-23 Aug-24 Dec-24 Others Inflation 0 20 40 60 Energy Food CPI New Old Core (excl. food and energy) Sources: NBS Sources: NBS Others include: Recreation, Sport and Culture; Alcoholic Beverages, Tobacco, and Narcotics; Insurance and Financial Services; Furnishings, Household Equipment, and Routine Household Maintenance; Information and Communication; Personal Care, Social Protection, and Miscellaneous Goods and Services; Clothing and Footwear; Health PMI indicates an increase in manufacturing activity, Price pressures remain elevated. Previous though pressured by higher input costs (Figure 1.4). unsustainable macroeconomic policies, coupled Beyond short-term gains in business activity, spurring with external and internal shocks, stoked inflation longer-term, sustained, and broad-based growth from 2015. The needed policy improvements since will require a step increase in private investment. mid-2023 added further, temporary pressure, as This requires maintaining recent advances on key administered prices had to be adjusted to their macroeconomic stability, as well as deepening fundamentals, especially for PMS, FX, and (partially) reforms to address structural constraints, including electricity tariffs. Monetary policy tightening has helped to halt the price surge, but a sustained high trade barriers, weak competition forces, poor disinflation path is yet to be achieved (Figure 1.5). access to reliable electricity supply, insecurity, and Entrenched inflationary expectations continue low human capital levels (see Part 2). to exert upward pressure, combined with the passthrough of exchange rate variations4. Gauging 1.2 The monetary policy stance inflation dynamics in early 2025 is complicated by has remained tight to rein in high, the consumer price index (CPI) rebasing, which sticky inflation lowered the weight of domestically consumed goods, increased those of services, and changed the basket 4 See Box 1.2 in the October 2024 NDU. 4 PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH of tracked prices (Figure 1.6). Yet, price pressures liquidity has started transmitting to market rates, remain high, and re-anchoring inflation expectations which broadly regained their MPR anchor (Figure will demand persistent monetary policy efforts. 1.7). CBN also took a further step towards greater transparency and market confidence by publishing To regain price stability, the Central Bank of its audited financial statements for 2024. Nigeria has appropriately maintained a tight monetary policy stance. With the last increase of 25 There is scope for further improvements in basis points (bps) in November 2024, maintained in monetary policy transmission. Short-term February 2025, the Monetary Policy Committee has interbank rates oscillate between the SDF and hiked the monetary policy rate (MPR) by 875 bps, to SLF (Figure 1.8), rather than being broadly stable 27.5 percent, since February 2024. It has also raised around the MPR, reflecting liquidity management the Cash Reserve Ratio (CRR) to an exceptionally constraints. Shortening OMO maturities, as well as high 50 percent, increased the standing deposit limiting them to domestic investors, could increase facility (SDF) rate to MPR -100 bps, and raised the their effectiveness in mopping up naira liquidity in standing lending facility (SLF) rate to MPR +500 the short term. It could also help channel longer bps. Monetary policy implementation has been term lending to the private and public sectors, and notably stronger, including through more intensive eliminate the current segmentation of the yield curve use of open market operations (OMOs) and an between CBN and FGN securities of same tenors. effective standing deposit facility (SDF). Tighter Removing restrictions to access the SLF if engaged Figure 1.7: Longer market rates are Figure 1.8: … but short-term rates better anchored to the policy rate… are still not at MPR, given liquidity management constraints Treasury bills-YTM, OMO Yield, MPR OBB rates and CBN Policy Rates (%) (%) 35 40 30 35 25 30 20 25 15 10 20 5 15 9-Jan-25 24-Jan-25 10-Feb-25 25-Feb-25 12-Mar-2 5 27-Mar-2 5 1-Aug-24 16-Aug-24 2-Sep-2024 18-Sep-2024 4-Oct-2024 21-Oct-2024 5-Nov-24 20-Nov-24 5-Dec-24 20-Dec-24 11-Apr-25 0 Jan-23 Jul-23 Jan-24 Jul-24 Jan-25 Ma y-23 Sep-23 Sep-24 Nov-23 Ma y-24 Nov-24 Ma r-23 Ma r-24 Ma r-25 1 yr T-bill YTM at Issuance OBB MP R 1-yr OMO Yield MP R SLF Rate SDF Rate Sources: CBN Sources: CBN Note: OBB = open buy back; SLF = standing lending facility; SDF= standing deposit facility; MPR = monetary policy rate. PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA 5 NIGERIA DEVELOPMENT UPDATE | MAY 2025 in other transactions with CBN, and bringing its emergency cash support, stronger growth and a rate closer to the MPR, could also help to pin down robust social protection framework are essential short-term rates. Over time, as inflation falls, the to promote productive livelihoods. Leveraging use of the CRR as a monetary policy tool should early dividends from macroeconomic reforms, be reassessed; using it as a prudential tool, instead, Nigeria’s social protection system should be as in most countries, would allow greater financial structurally strengthened, with a focus on providing intermediation and improve resource allocation (see the foundation for human capital investments, section 1.5). promoting economic inclusion, building resilience, and breaking the inter-generational cycle of poverty. 1.3 Economic growth, low This needs to be complemented by growth-oriented inflation, and social protection are reforms and higher, more efficient investments in key to combatting the cost-of- public services, especially in health, education, and living crisis infrastructure (see Part 2 of this NDU). 1.4 The external position has Successive years of rising inflation and sluggish continued to improve, including growth have increased poverty and hardship levels. through FX reforms Since 2018/19, an additional 40 million people fell into poverty, and nearly half of all Nigerians (46 percent measured at the international poverty line In parallel to monetary tightening, comprehensive of US$2.15 based on the 2017 PPP) are estimated reforms have improved the functioning of the FX to have been living in poverty in 2024. Labor market. Following a regulatory overhaul in early incomes have not kept up with inflation, depleting 2024, the FX market has progressively stabilized the purchasing power of Nigerians. Poverty has from mid-2024 with a generally negligible parallel deepened and broadened, especially among urban market premium (Figure 1.9). Continuing FX Nigerians. reforms, the CBN adopted a new platform for interbank FX trading in December 2024 and Efforts to urgently provide support to the poorest published new operating guidelines. This improved and most economically at-risk households should market transparency and price discovery. After be redoubled and expanded. To alleviate the added implementing a regulatory reform of the bureau de cost-of-living pressures, the government launched a change operators (BDCs), the CBN has also allowed temporary social assistance program with the goal this last mile segment to access the FX interbank of supporting 15 million households with time- market through authorized dealers, although still on bound cash transfers. However, roll-out has been a temporary basis and at capped volumes. If well and slow, and should be accelerated. Only 5.6 million permanently implemented, this could bridge the households have received at least one tranche of gap between the interbank and retail FX markets, direct transfers, with the further expansion of the typically associated with informal transactions. program still dependent on biometrically verifying at least one adult member of the household with FX market turnover continues to be dominated their foundational digital identity. by CBN and foreign portfolio investment flows. While turnover in the market increased with recent Alongside macroeconomic reforms and reforms, net inflows are still largely driven by CBN interventions - occasionally and purportedly to curb 6 PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH excessive volatility - and foreign portfolio investment exchange rate. Inward remittances, particularly (FPI) - attracted by relatively high yields and through formal channels, increased and remained potential revaluation gains (Figure 1.10). Although high at an estimated US$21 billion, supported helpful as a source of FX, debt financing, and external by the FX market unification and other measures adjustment, FPI flows are volatile, especially when adopted by CBN to boost remittance inflows. The they are short-term as is predominantly the case for service trade and income balances remained negative Nigeria at present. The main historical sources of FX in 2024. inflows to Nigeria, oil exports and remittances, need to substantially and consistently flow back into the The surge in foreign portfolio investment (FPI) official market for its full consolidation. contributed to a stronger financial account position. Net FPI inflows grew by 110 percent in The exchange rate unification and depreciation 2024 to US$13 billion in response to the market- of the naira contributed to a surge in the current reflective exchange rate and the higher domestic account balance (CAB) in 2024 through import debt security and OMO yields (Figure 1.13). While compression and higher remittances. The CAB there was a net inflow of foreign direct investment increased by 185 percent to US$17.2 billion in (FDI) in 2024, it remained extremely low, as in 2024 (9.2 percent of GDP), as imports of both oil previous years, at less than 1 percent of GDP (Figure and non-oil goods imports compressed. While oil 1.13). Long term foreign investments in Nigerian production increased, oil export revenues fell in US corporations, through either equity or debt, continue dollar terms, but non-oil exports increased by 25 to be hampered by structural constraints that affect percent, aided by a market-reflective, competitive the business environment. There was a net outflow in Figure 1.9: FX reforms have eliminated Figure 1.10: …but the FX market is still the parallel premium, and the dependent on FPI and CBN flows exchange rate has been more stable… Exchange rate (Naira/US$) Net Inflows (US$' billion) 2 1800 1600 1.5 1400 1 1200 0.5 1000 800 0 600 -0.5 400 -1 200 0 -1.5 Feb-25 Feb-24 Jun-24 Jul-24 Jan-25 Jan-24 Apr-24 Feb-25 Ma y-24 Aug-24 Sep-24 Feb-24 Oct-24 Nov-24 Dec-24 Jun-23 Jun-24 Apr-23 Aug-23 Apr-24 Aug-24 Apr-25 Ma r-25 Oct-23 Dec-23 Oct-24 Dec-24 Ma r-24 NAFEX Parallel FPIs CBN Others Total Net Flow Sources: CBN, FMDQ, market surveys Sources: FMDQ. PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA 7 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Figure 1.11: Imports compressed in Figure 1.12:…. contributing to a higher 2024… current account balance Contributions to net exports (US$b) Contributions to CAB (US$bn) 80.0 30.0 60.0 20.0 40.0 10.0 20.0 0.0 0.0 -10.0 -20.0 -20.0 -40.0 -60.0 -30.0 -80.0 -40.0 2020 2021 2022 2023 2024e Goods exports (oil) Goods imports (oil) -50.0 Goods exports (non-oil) Goods imports (non-oil) 2019 2020 2021 2022 2023 2024e Services (net) Net exports Net exports Net income Net transfers CAB Sources: CBN; World Bank projections Sources: CBN; World Bank projections Figure 1.13: FX and monetary reforms Figure 1.14: FX reserves increased attracted higher FPI inflows in 2024 along with CAB and FAB surpluses, though declining in 2025 FDI, FPI, and Other investment Gross External Reserve (US$' Inflows (Net, US$ billion) billion) 45 40 40 30 35 20 30 10 25 0 20 -10 15 10 -20 5 -30 0 2020 2021 2022 2023 2024e Feb-22 Mar-24 Jan-20 Jun-20 May-23 Jan-25 Nov-20 Apr-21 Sep-21 Jul-22 Dec-22 Oct-23 Aug-24 FDI FPI Other Investments Sources: CBN, World Bank Sources: CBN 8 PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH the “other investments” component of the financial 1.5 The financial sector remains account, driven by sizable repayments of foreign shallow, albeit healthy loan liabilities in 2024. There was a large accretion to the gross external As government yields rose with the necessary reserves in 2024, but they declined in early 2025, macroeconomic reforms, credit to the public as CBN settled near-term FX liabilities. Gross sector increased, unlike to the private sector (Figure 1.15and Figure 1.16). With the end of Ways and reserves (30-day moving average) increased from Means (W&M) advances and the monetary policy US$32.9 billion (6 months of imports) at the end of tightening, government financing started reflecting 2023 to US$40.9 billion (11.4 months of imports) its true, higher costs. As a result, credit to the central at the end of 2024, before subsequently declining to government became more profitable for the banking US$37.9 billion at end-April 2025. While the CBN sector (banks and other deposit taking institutions), has intermittently intervened in the FX market, increasing throughout 2024 to reach 19.8 percent it also continued to settle sizable FX liabilities. In YoY growth by December. Ways and Means (W&M) April 2025, CBN published the net external reserves balance continued to fall, by 68 percent in real terms position for the first time since 2023, which stood in 2024 (see section 1.6). Credit to the private sector at US$23.1 billion in end-2024, up from US$4.0 by banks, in turn, although growing in early 2024, billion in end-2023. This positive step towards entered a downward trajectory as market rates rose, reserves transparency is expected to boost confidence ending the year at similar levels as in 2023. Credit in Nigeria’s external liquidity. by the central bank to the private sector has settled Figure 1.15: Higher yields increased Figure 1.16: … while credit to the private credit to the government by the sector reverted its early year growth in banking sector … 2024 Net credit to the Government by the Credit to the private sector (constant banking sector (constant 2009, Naira 2009, Naira trillion) trillion) 10 0.6 2.5 9 0.5 8 2.0 0.4 7 0.3 1.5 6 0.2 5 1.0 4 0.1 0.5 3 - Jan-23 Mar-23 May-23 Jan-24 Mar-24 May-24 Jul-23 Sep-23 Nov-23 Jul-24 Sep-24 Nov-24 0.0 Apr-22 Oct-22 Apr-23 Oct-23 Apr-24 Oct-24 Jan-22 Jan-23 Jan-24 Jul-22 Jul-23 Jul-24 Central Bank(rhs) Banking Sector Sources: CBN Sources: CBN PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA 9 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Figure 1.17: The credit market in Nigeria Figure 1.18: … and market capitalization is still underdeveloped … is modest Credit to public and private sectors by Market capitalization, listed domestic banks (percent of GDP) companies (percent of GDP), 2022 140% 120 120% 100 288 percent 100% 80 80% 60% 60 40% 40 20% 20 0% 0 na ut ne s an h G a N e In nya d' a Pa i ca ng p al r Ph de s Ghana i Philippines si South Africa India Nigeria Bangladesh Indonesia Kenya Tanzania Pakistan er oi st ha r C o ne Ba Ne So p pi ig Ke Iv Af ki la d h ili e ôt Credit to the private sector Credi t to the publi c sector Total Credit (ex OFC) Sources: WDI Sources: WDI at very low levels, reflecting the unwinding of the CRR in Nigeria is not primarily used as a prudential distortive direct credit allocation in 2020-2022, tool but for liquidity control. Monetary policy which reached almost 10 percent of total credit to tightening, then, has required exceptionally high private sector in mid-2022. CRR levels, limiting how much the banking sector Despite recent improvements, the financial sector can lend out to the economy. Out of total deposits, remains shallow. Adoption of digital financial 27 percent is held at CBN in required reserves and services (DFS) has improved financial inclusion. The another 12 percent in CBN securities, a much higher number of e-payment transactions and their value share than in peer countries (Figure 1.19)5. With a increased 14.9 and 17.6 percent, respectively, in H1 total of 41 percent of total deposits kept at CBN, 2024 YoY. Yet, banking sector credit to the public public and private sectors compete from the same and private sector stood at 26.6 percent of GDP in reduced pool of resources. Furthermore, required 2024, one of the lowest among peers (Figure 1.17). reserves are unremunerated, such that banks require Similarly, market capitalization on the Nigerian higher spreads when lending to make up for the loss Exchange Group (NGX) is still modest compared to in revenue in reserves. peers (Figure 1.18). Although underdeveloped, the banking sector Beyond structural sector constraints, weaknesses remains healthy. The ratio of non-performing in the monetary policy implementation loans (NPLs) to total loans increased slightly by 0.4 framework also contribute to limit financial percentage points to 4.6 percent in Q3 2024 YoY intermediation. Unlike in many countries, the but remains below the CBN’s prudential benchmark 5 Note that the Cash Reserve Ratio required of Deposit Money Banks is 50 percent and of Merchant Banks, 16 percent. Yet, this ratio is applied to a subset of total deposits. 10 PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH Figure 1.19: Exceptionally high CRR level reduces the pool of resources available for bank lending, limiting financial intermediation Banking sector claims on Central Bank (% share of total deposits) 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Bangladesh Pakistan Nepal Kenya Nigeria Philippines South Africa Ghana Côte d'Ivoire Indonesia Reserve and Securities Other Claims Currency Total claims Sources: CBN, IMF of 5 percent. The industry’s liquidity ratio, at 46 by fiscal consolidation at the FGN level in percent in September 2024, was still significantly 2024. In 2024, the FGN’s fiscal deficit narrowed higher than the minimum regulatory benchmark to N10.5 trillion (3.8 percent of GDP) from of 30 percent. Banks responded positively to the N11.9 trillion (5.1 percent of GDP) Figure 1.20. CBN’s recapitalization program, and the capital This improvement was primarily due to a surge adequacy ratio (CAR) showed notable improvement in revenues from the removal of the implicit FX by September 2024, increasing roughly 2 percentage subsidy, improved tax administration, and reforms points to 14 percent YoY. This increase was largely that enhanced the transparency and accountability driven by growth in total qualifying capital, of how government-owned enterprises (GOEs) and including higher profits and retained earnings, and a ministries, departments, and agencies (MDAs) remit reduction in risk-weighted assets. Disaggregated data their statutory revenues. Meanwhile, expenditures is unavailable for the industry’s average CAR. Yet, it slightly increased due to a higher wage bill following remained above the 10 percent benchmark for banks the increase in the minimum wage and new spending, with national and regional authorization but lower such as on the presidential metering initiative. than the 15 percent threshold required for banks with international authorization. Gains from FX unification and improved revenue administration boosted FGN’s revenues. Revenues increased sharply from N6.8 trillion (2.9 1.6 The fiscal situation improved, percent of GDP) in 2023 to N12.4 trillion (4.5 driven by a surge in revenues percent of GDP) in 2024, due to three factors (Figure 1.21) First, the unification of the FX rate Monetary policy tightening has been accompanied led to a significant revenue windfall, as various FX- PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA 11 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Figure 1.20: The Federal Government’s fiscal position improved in 2024 FGN fiscal balance (percent of GDP) 9 8 7 3.8 6 5.1 5 4.9 4.5 4 3 2 1 0 2021 2022 2023 2024 Deficit Spending Revenues Sources: OAGF; NBS; DMO, World Bank. denominated revenues (oil, VAT, CIT, and customs) in the minimum wage from NGN 30,000 per month used to be transferred to the Federation at the official to N 70,000 per month. Despite the announcements rate, which was 53 percent lower than the parallel made in the revised 2024 budget, capital expenditure rate in 2022, causing large forgone revenues (see Box rose by only a modest N 0.5 trillion in 2024, a large 1.3 of the NDU October 2024). Second, enhanced under-execution of about 50 percent for the period6. tax administration, including digital tax collection Meanwhile, other recurrent spending, including via the TaxProMax system and the implementation statutory transfers, the Presidential metering initiative of withholding VAT at source by certain sectors, and other service wide votes more than doubled to also helped boost revenues as evidenced by the 86.1 about NGN 3.7 trillion in 2024. percent (yoy) increase in locally collected VAT in 2024. Third, FGN’s independent revenues increased In a crucial positive step toward restoring fiscal by 0.8 percentage points of GDP in 2024, following discipline and reducing inflation, the authorities the December 2023 reform that standardized and have ceased resorting to deficit monetization automated remittances from MDAs and GOEs to through ways and means. Following the the treasury. securitization of part of the legacy stock of CBN advances using market-based debt instruments in FGN’s expenditures remained restrained relative H1-2024, the stock of ways and means advances to GDP. Spending increased from N18.6 trillion declined from N8.6 trillion in December 2023 to (7.9 percent of GDP) in 2023 to N22.9 trillion (8.3 N3.7 trillion in June 2024 and has remained nearly percent of GDP) in 2024 (Figure 1.22). Personnel constant since then (with the latest data available as costs were up by NGN 0.8 trillion due to the increase of December 2024), indicating the discontinuation 6 The capex budget execution excludes capex by FGOEs and TETFUND. 12 PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH Figure 1.21:... FGN revenues surged in Figure 1.22:...: FGN spending increased 2024 thanks to the FX unification and slightly due to a higher wage bill and improved revenue administration new spending such as the presidential FGN expenditures (% of GDP) FGN revenues (% of GDP) 5.0 9 8 4.0 7 6 3.0 5 2.0 4 3 1.0 2 1 0.0 12M-2021 12M-2022 12M-2023 12M-2024 0 12M-2021 12M-2022 12M-2023 12M-2024 Independent revenues VAT Personel Ov erhead Corporate Custom Interest Other Net oil revenues Total revenues Capex Total expenditures Sources: OAGF, DMO, NBS Sources: OAGF, DMO, NBS of deficit monetization. and reporting. The establishment of a Fiscal Data Coordination Framework in March 2025 is a step in Despite these improvements in the fiscal the right direction. position, there remains a need for greater clarity, transparency and accessibility in fiscal and budget Based on available information, the 2025 budget reporting. Nigeria currently lacks an official fiscal envelopes are much larger than what is likely position for the entire country across all tiers of to be achieved and executed. The 2025 budget Government (Federal Government, States, FCT, and assumptions in the preliminary MTEF- FSP include Local Governments) which leads to uncertainties. oil price estimates of $75 per barrel for 2025, $76.2 Fiscal and budget reporting face several challenges, for 2026, and $75.3 for 2027; which could be affected including opaque tracing of oil revenues, significant by global uncertainties and shocks. The government time lags in publishing data, and inaccessibility of expects crude oil (including condensates) output to reports and data. For instance, the official approved be 2.1 mbpd in 2025 and 2026, and 2.4 mbpd in budget document for 2025 was only publicly available 2027; this is optimistic, knowing that oil production at the end of March 2025 and the updated Medium (including condensates) averaged 1.6mbpd in Term Expenditure Framework and Fiscal Strategy January-March 2025. This conforms to a historical Paper (MTEF-FSP) was still not available as of early pattern of over-optimistic budgeted oil production May 2025. Moreover, Public Financial Management estimates. FGN revenues for 2025 are anticipated to (PFM) systems are fragmented, undermining fiscal be 70 percent from oil and 30 percent from non-oil management. It is therefore imperative to address sources, assuming full remittance of the fiscal savings these challenges in fiscal and budget monitoring from PMS subsidy removal. However, as of March PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA 13 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Figure 1.23: On aggregate, the fiscal situation of Nigerian states improved in 2024… Fiscal situation of Nigerian states (N bln) Fiscal situation of Nigerian states (% of GDP) 18,000 6.5 Fiscal balance: 1,682 6.0 Fiscal balance: 0.6 16,000 5.5 5.0 13,862 14,000 5.0 12,180 4.4 12,000 4.5 Fiscal balance: 0.2 Fiscal balance: 437 4.0 10,000 3.5 3.1 8,000 7,181 2.9 6,744 3.0 6,000 2.5 2.0 4,000 1.5 2,000 1.0 0 0.5 12M-2023 12M-2024 0.0 12M-2023 12M-2024 Revenues Spending Revenues Spending Sources: State Budget Implementation Reports (BIRs) and World Bank calculations. Note: Excludes Sokoto, Rivers because BIRs are not available for all quarters. Revenues exclude new borrowing, and spending excludes amortization” Figure 1.24:.… albeit with significant variation with some states doing better than others 800 Fiscal balance of Nigerian states: 2023 vs 2024 (N bln) 700 600 500 400 300 200 100 0 -100 -200 -300 -400 -500 NIGER OYO KATSINA TARABA YOBE ABIA KADUNA KW ARA ZAMFARA ADAMAW A PLATEAU BORNO EDO ONDO EBONYI BAUCHI EKITI IMO KOGI BAYELSA JIGAWA LAGOS DELTA GOMBE NASARAWA ANAMBRA BENUE CROSSRIVER ENUGU OGUN OSUN KANO KEBBI AKWAIBOM 2023 2024 Sources: State Budget Implementation Reports (BIRs) and World Bank calculations. Note: Excludes Sokoto, Rivers because BIRs are not available for all quarters. Revenues exclude new borrowing, and spending excludes amortization. 14 PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH 2025, this full remittance had not yet occurred, as likely to be overly ambitious due to limited absorptive NNPCL claims it has large PMS-related subsidies that capacity and historical under-execution of capex. should be settled first (see Box 1.1). Additionally, the Realism of macroeconomic parameter projections 2025 revenue forecast incudes the implementation is important as unrealistic revenue projections may of the windfall tax on FX realized gains, which also cause financing requirements to exceed budgeted has not yet been executed so far. Capital expenditure amounts, leading to a build-up of arrears and raising for 2025 is projected at N23.4 trillion, almost four the risk of renewed recourse to deficit monetization. times the N6 trillion actual outturn in 2024. This is Figure 1.25:. Revenues of all Nigerian states increased due to a surge in FAAC inflows Revenues of states (Naira billion) Revenues of Nigerian states: 2023 vs 2024 (N billion) 2,500 16,000 13,862 14,000 2,000 12,000 10,000 1,500 8,000 7,181 1,000 6,000 4,000 500 2,000 0 OYO 0 TARABA KATSINA PLATEAU EBONYI BAUCHI EKITI IMO KOGI ONDO BENUE KWARA DELTA CROSSRIVER ENUGU OGUN BORNO 12M-23 12M-24 Grants Internally Generated Revenues (IGR) Revenues from FAAC Total State revenues 2023 2024 Sources: State Budget Implementation Reports (BIRs) and World Bank calculations. Note: Excludes Sokoto, Rivers because BIRs are not available for all quarters. Revenues exclude new borrowing. Box 1.1 : Gross FAAC revenues surged in 2024, but a large share was deducted and remitted back as revenues to states and local governments Gross revenues collected by Nigeria's main revenue agencies surged in 2024, despite minimal remittances from NNPCL. FAAC data show that gross revenues collected by the main revenue agencies (FIRS, NCS, NNPCL and NUPRC) rose significantly from N16.5 trillion (7 percent of GDP) in 2023 to N29.5 trillion (10.6 percent of GDP) in 2024. The largest revenue increases came from FX-denominated sources that benefited from the removal of the FX subsidy, including oil revenues (royalties, taxes, signature bonuses), customs revenues, and the foreign trade-related component of VAT (Figure B1.1). However, NNPCL was the only laggard, remitting just N0.6 trillion to FAAC in 2024, down from N1.1 trillion in 2023, largely due to the implicit PMS subsidy, which remained in place until the end of September 2024. Although the subsidy was fully removed PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA 15 NIGERIA DEVELOPMENT UPDATE | MAY 2025 on October 1, 2024 (Figure B1.2), NNPCL did not start transferring the resulting revenue gains to the Federation until January 2025. From that point, it began remitting 50 percent, with the other half being used to settle past arrears. As of February 2025, NNPCL’s claimed arrears stood at N7.8 trillion, while the Federation’s claims totaled N6.1 trillion, resulting in net arrears to NNPCL of approximately N1.7 trillion, down from N3.4 trillion in September 2024, before the subsidy removal (Figure B1.3). Figure B1.1:. Gross revenue collected by the Federation surged in 2024 % Change 2023 2024 2023 2024 Growth as % Agency Revenue type Jan-Dec Jan-Dec (YoY) Jan-Dec Jan-Dec GDP (NGN tln) (NGN tln) (% GDP) (% GDP) (pp) NUPRC Oil and gas royalties 2.4 6.3 162.5 1.0 2.3 1.2 NUPRC Gas flaring penalties 0.1 0.4 187.4 0.0 0.1 0.1 NUPRC Rentals 0.0 0.0 102.5 0.0 0.0 0.0 NUPRC Miscellaneous 0.0 0.0 115.9 0.0 0.0 0.0 Federation share of NNPC NNPC 0.5 0.3 -40.1 0.2 0.1 -0.1 PSC Interim dividends from NNPC 0.6 0.3 -42.7 0.3 0.1 -0.1 NNPCL FIRS Oil and gas taxes 2.9 5.9 106.9 1.2 2.2 0.9 FIRS CIT, SDT, and CGT 4.2 5.9 40.5 1.8 2.1 0.3 FIRS VAT 3.6 6.7 86.1 1.5 2.4 0.9 FIRS EMTL 0.2 0.2 29 0.1 0.1 0.0 NCS Custom revenues 2.0 3.4 69.2 0.9 1.2 0.4 FGN independent revenues 2.0 4.4 119.7 0.8 1.6 0.8 State IGR States 2.2 3.2 42.6 0.9 1.1 0.2   Total 20.7 37.1 79.2 8.8 13.3 4.5 Source: FAAC, OAGF, BIRS, NBS, World Bank. Note: The green (red) shaded area suggests a negative (positive) change in revenues as a ratio of GDP between 2023 and 2024 However, a significant portion of gross FAAC revenues was deducted, with states receiving the largest share of these deductions as revenues. Of the total N29.5 trillion in gross revenues, 43.5 percent (N12.8 trillion) was deducted and not distributed according to the statutory revenue-sharing formula (Figure B1.4). Aside from the N1.3 trillion allocated for the cost of collection by various MDAs (FIRS, NCS, NMDPRA, NUPRC, and NEDC)—which has risen significantly due to the revenue surge—most deductions were ad hoc (Figure B1.5). These included N700 billion for the Presidential Metering Initiative, N1.2 trillion for the Nigerian military’s special intervention program, and a substantial N8.3 trillion in disbursements to states and local governments for (i) federal support to states for infrastructure and security, (ii) refunds for signature bonuses, (iii) refunds for Excess Crude Account (ECA) withdrawals, and (iv) derivation refunds to oil-producing states. These FAAC disbursements, which significantly contributed to the recent surge in state-level revenues, stem from 16 PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH past expenditures executed by the Federal Government but originally belonging to states and local governments. Figure B1.2:. The PMS subsidy has been Figure B1.3:. … as a result, NNPCL eliminated since October 2024… arrears have decreased NNPC vs Federation claims 9 8 7 2.1 1.91.7 6 3.4 3.0 2.6 Naira trillion 3.5 3.5 3.2 5 2.9 2.4 4 1.5 1.3 3 1.2 0.8 2 0.1 0.4 0.2 1 1.0 0.9 0.4 0 Oct-23 Feb-24 -24 Oct-24 Feb-25 Jun-23 Aug-23 Dec-23 Jun-24 Aug-24 Dec-24 Apr FGN arrears NNPC arrears Sources: FAAC and World Bank Figure B1.4 :. 43.4 percent of gross Figure B1.5: …benefiting mainly the revenues were deducted… states FAAC revenues: Jan-Dec FAAC deductions (Jan-Dec 2024, N bln) 35 29.5 30 Refunds to states (Refund from 25 1,709 Signature Bonus, withdrawal from ECA, 13% derivation refund on JVC, 12.8 Infrastructure Fund, etc.) Refunds to LGCs from signature 20 16.5 bonus revenue 1,308 15 5.1 Special intervention program for Nigerian military 700 10 16.7 7,619 Funding for the presidential metering 5 11.3 1,200 initiative Statutory cost of collection (FIRS, 0 650 NEDC, NCS, NMDPRA, NUPRC, etc.) 2023: Jan-Dec 2024: Jan-Dec Other deductions Deductions (cost of collection, refunds, interventions, transfers) Distributable revenues Gross revenues Sources: FAAC and World Bank The fiscal improvement observed at the federal variation. Based on data compiled from various government level was even more pronounced at Budget Implementation Reports (BIRs), a total of the state level, where states are experiencing a 34 Nigerian states recorded an aggregate surplus of fiscal surplus on aggregate, albeit with significant approximately N1.6 trillion (0.6 percent of GDP) PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA 17 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Figure 1.26:. Large infrastructure gaps prompted states to use the revenue windfall and increase spending on capital-intensive sectors State spending by sector: 2023 vs 2024 (NGN bn) 5000 4000 3000 2000 1000 0 n ir s n ty re s lth g n t rt n gy n s en t io ri e t io ice sin io io io po fe tu ea ff a er at ct m lig ec sa ica st ul ns ou rv En a tru H uc on re du ric ot se ra un nd H c Ed r ns i pr d In Ag vi T om ic m an ra co En al bl om on de ci pu re d So ec C an tu or al ul ic al g er C in bl er en in Pu en G M G 12M-24 12M-23 Sources: State Budget Implementation Reports (BIRs) and World Bank calculations. Note: Excludes Sokoto, Rivers because BIRs are not available for all quarters. Spending excludes debt amortization. in 2024, significantly higher than the N437 billion granted by the FGN for infrastructure and security (0.2 percent of GDP) surplus in 2023 (Figure 1.23)7. support and (ii) NGN 7.1 trillion in oil-related While most states maintained a near-balanced fiscal refunds (see Box 1.1). As a result, FAAC revenues to position, some, such as Niger and Ebonyi, recorded states rose from N4.8 trillion (2 percent of GDP) in fiscal deficits, whereas others—mainly oil-producing 2023 to N9.5 trillion (3.4 percent of GDP) in 2024. states like Ondo, Akwa Ibom, and Delta—reported The seven oil-producing states—Abia, Akwa Ibom, large surpluses (Figure 1.24). Bayelsa, Delta, Edo, Imo, and Ondo—benefited the most from the FAAC windfall, accounting for The improved fiscal position at the state level in 31 percent of the total revenue increase in 2024 2024 stems from significantly higher revenues, (Figure 1.26). In addition to the FAAC increase, driven in part by large refunds to states that had state Internally Generated Revenues (IGR) grew been deducted from FAAC. Revenues for the 34 by 46 percent, reaching N2.9 trillion (1 percent of states with available BIRs surged from N7.2 trillion GDP), while grants and aid nearly tripled to N1.5 in 2023 (3.1 percent of GDP) to N13.9 trillion trillion (0.5 percent of GDP), further strengthening in 2024 (5 percent of GDP) (Figure 1.25). This state finances. increase was fueled by a rise in oil, VAT, CIT, and customs revenues—distributed to states through the Given the significant fiscal space created by statutory revenue-sharing formula—as well as two the surge in revenues, states have substantially key FAAC-financed windfalls: (i) NGN 1.2 trillion increased their spending, primarily on capex. 7 The Budget Implementation Reports (BIRs) for Rivers and Sokoto are not consistently available from Q1 2023 to Q4 2024; therefore, they were excluded to ensure consistency in the analysis across time periods. 18 PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH State expenditures rose from N6.7 trillion in 2023 US$9.1 billion. The bond sale included a 6.5-year, (2.9 percent of GDP) to N12.2 trillion (4.4 percent US$700 million bond priced at 9.6 percent and a 10- of GDP) in 2024, driven almost entirely by higher year, US$1.5 billion bond at 10.3 percent. While the capex, which more than doubled from N3.3 trillion issuance reflects renewed foreign investor confidence in 2023 to N7.4 trillion in 2024. This increase in Nigeria, the cost of borrowing was high. reflects the very large infrastructure gap, which many states suffer from (see Part 2, Figure 2.4). Sectoral 1.7 The economic outlook is data reflect this trend, with capital-intensive sectors cautiously optimistic for Nigeria such as transport, agriculture, mining, housing, and other industries seeing spending increases of over 100 percent, most of which is devoted to capex Global growth expected to be weighed (Figure 1.26). Meanwhile, social sectors – including down by headwinds9 social protection, education, and health – also saw notable spending growth, albeit at lower rates of 57, Global growth is expected to moderately 63, and 75 percent, respectively. expand over 2025-26, at 2.7 percent per year. A deceleration in growth in the United States and Nigeria’s debt burden remains at a moderate China is expected to be offset by higher growth level. Public and publicly guaranteed (PPG) debt elsewhere, partly driven by emerging market and increased to 53.2 percent of GDP in 2024, up from developing economies (EMDEs). Global activity 45 percent of GDP in 20238. The increase in overall has remained in expansionary territory in early 2025 debt, despite the improvement in the fiscal situation, amid some recent weakening of services activity. primarily reflects significant FX revaluation effects Inflation has been moderating without a substantial from the depreciation of the naira, which raised the growth slowdown in key economies, and monetary relative value of external debt from 16.3 percent of policy easing has now become widespread. Yet, total debt in 2023 to 26.3 percent in 2024. While growth dynamics across advanced economies and the public debt-to-GDP ratio increased, Nigeria’s EMDEs are forecast to diverge in 2025-26. Growth most concerning debt indicator—the debt service- in advanced economies is expected to edge up, while to-revenue ratio—continued to improve (decline), continuing challenges in the property sector in falling below 40 percent in 2024, down from China are anticipated to weigh on activity. Aggregate around 100 percent in 2022. Despite this notable growth in other EMDEs is projected to firm over improvement, the ratio remains high, underscoring the forecast horizon, supported by easier financing the need for further revenue mobilization and conditions, recovering real incomes, and improving expenditure discipline. In terms of financing, Nigeria industrial activity and external demand. successfully raised US$2.2 billion through a sovereign Eurobond issuance on December 2, 2024 – its first Growth in EMDEs is forecast to remain at about 4 since February 2022 – as part of external borrowing percent over 2025-26 on average as the projected to finance the 2024 federal budget. Compared with slowdown in China is offset by an aggregate pickup the initial offer of US$1.7 billion, the issuance was in other EMDEs. Growth in EMDEs excluding significantly oversubscribed, attracting bids totaling China is projected to improve, mainly reflecting 8 This includes remaining ways and means stock but excludes electricity subsidy arrears, AMCON liabilities and explicit guarantees; if these are included the debt stock would have been 49.6 percent of GDP in 2023 and 57.9 percent of GDP in 2024. 9 For further details on the global economic outlook, consult the source of this subsection: “World Bank (2025). Africa's Pulse, No. 31, April 2025: Improving Governance and Delivering for People in Africa” PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA 19 NIGERIA DEVELOPMENT UPDATE | MAY 2025 firming domestic demand, including strengthening macroeconomic stabilization. However, the existing investment in many EMDEs amid rising business structural bottlenecks, including insufficient power confidence. Consumption is also expected to remain supply and high input costs, will continue to pose solid across EMDEs, supported by receding inflation, constraints to manufacturing growth. Oil sector improved real household incomes, and stronger growth is expected to slow down but remain positive. consumer confidence. Long-term drivers of growth The services sector will continue to drive growth in have come under pressure, with trade—a key driver the medium term, boosted by increased activities in of investment and productivity growth in EMDEs— the financial and ICT services. facing headwinds from heightened geopolitical shifts, trade fragmentation, and elevated policy uncertainty. Inflation is expected to moderate and average Furthermore, significant challenges continue to 22 percent in 2025, tapering to 15 percent by persist in vulnerable economies, including in low- 2027. Headline inflation is expected to gradually income countries (LICs) and those facing elevated ease in 2025, driven largely by tight monetary levels of conflict and violence. policy. Additionally, the direct- and indirect price increases caused by the naira’s depreciation in Commodity prices are forecast to decline in 2023-24, higher gasoline prices associated with 2025-26. Nevertheless, most commodity prices the elimination of the PMS subsidy, and a partial are expected to remain well above pre-pandemic increase in electricity tariffs in 2024, will drop out levels, supporting economic activity in many of the base of comparison by the end of 2025 and commodity exporters. Risks to commodity prices moving into 2026. Second round price effects are are substantial, including due to trade policy expected to be contained, so long as CBN remains uncertainty. Commodity-specific tariffs could create focused on restoring price stability. The challenge of price differentials and trade diversion, while broad- decisively bringing down inflation should be seen in based tariffs could weaken global economic activity the context that it takes time to reverse expectations and dampen demand, putting downward pressure of continually increasing inflation, which result from on commodity prices. a prolonged period of rising inflation, as has been the case in Nigeria. Now that most of these previously Nigeria’s economic outlook is positive, suppressed prices have been allowed to adjust, and but hinges on staying the course with the CBN maintaining appropriately tight on implementing key reforms and monetary policy to foster renewed confidence in sustaining reform momentum the naira and begin to lower expectations of future Economic activity is expected to grow moderately price increases, the pace of price increases is expected in the medium term, driven by the services sector. to wane. Structural reforms to address supply-side GDP growth is projected to average 3.6 percent constraints such as unreliable electricity, inadequate between 2025 and 2027, with per capita GDP growth transport infrastructure, and trade restrictions, expected to be around 1.1 percent. Agricultural would also help lower prices. Finally, it will be vital output growth is estimated to remain low, as weak for the government to maintain fiscal discipline and productivity, high input and trade costs, and continue to avoid deficit monetization through Ways insecurity in food producing regions will continue and Means advances. to constrain production. The manufacturing sector is expected to grow moderately by an average of 2.8 The fiscal outlook remains positive, supported percent in the medium term, helped by ongoing by rising nominal revenues and ongoing reforms, 20 PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH including domestic revenue mobilization. The consolidated fiscal deficit is estimated to narrow over The current account balance is projected to remain the medium term reaching an estimated 3.0 percent in surplus in the medium term, standing at 8.9 of GDP by 2027. The fiscal gains from the PMS percent of GDP in 2027. The current account subsidy removal, if fully transferred back as revenues, surplus will be supported by rising non-oil exports, would further generate fiscal space. Continued fiscal responding to Nigeria’s improved international prudence, anchored by reforms and actions to further competitiveness following the macroeconomic raise revenues both at the Federal and state level, reforms. Conversely, a number of factors may through tax policy and tax administration measures, weigh on oil exports: lower global oil prices, greater would be critical to maintain macroeconomic absorption of crude oil by domestic refining in the stability and keep debt on a sustainable path. The medium term, and large forward commitments of 2025 FGN budget has ambitious macroeconomic NNPCL crude oil sales. The removal of the gasoline assumptions and revenue forecasts which, if not met, subsidy and, over time, higher domestic refining will could significantly increase the fiscal deficit even if likely reduce refined petroleum product imports. spending is within budget. Borrowing limits may be Remittance inflows are expected to grow modestly, insufficient, which poses a risk of reverting back to supported by the market-reflective exchange rate and deficit monetization. Sustained efforts to enhance remittances facilitation reforms. expenditure efficiency and transparency, and to redirect fiscal gains toward pro-growth sectors, are Risks to the outlook are largely tilted to the crucial for maximizing development outcomes. downside. These include political considerations This responsibility lies not only with the Federal related to drawing closer to the 2027 general Government but even more so with subnational elections, and potential social tensions that could governments, as states now receive more revenue weaken reform momentum and jeopardize recent than the Federal Government. advances; adverse weather shocks; rising insecurity in farming areas; and setbacks in oil production. Assuming continued fiscal prudence, debt is Global trade and geopolitical policy shifts could expected to remain sustainable. The debt dynamics also weigh on the outlook. Heightened uncertainty would be supported primarily by higher revenues could sharply lower oil prices, and, accordingly, oil driven by ongoing macroeconomic reforms. In exports and revenues, as well as tighten financial addition, the past securitization of the N22.7 trillion conditions. While the economy may cushion some Ways and Means stock into a long-term instrument of these impacts through a flexible naira acting as with a significantly lower interest rate would help a shock absorber, sustained resilience will require ease debt service payments. Over the medium term, more than macroeconomic stabilization alone. The the consolidated debt position is projected to remain government should therefore not only stay the around 52.4 percent of GDP by 2027, while the course on macroeconomic stabilization but also debt service-to-revenue ratio is expected to continue make progress on implementing a bold structural trending downward, remaining below 40 percent. reform agenda. Addressing pressing social and However, debt sustainability is highly susceptible to humanitarian challenges remains critical to ensuring shocks such as potential further depreciation of the inclusive and sustainable growth. Part 2 turns to a naira and major fiscal shocks such as a sharp decline discussion of such a growth agenda for Nigeria in in oil prices. 2025 and beyond.  PART 1: RECENT ECONOMIC DEVELOPMENTS AND THE OUTLOOK FOR NIGERIA 21 PART 2: A reform agenda for boosting inclusive growth in Nigeria BUILDING MOMENTUM FOR INCLUSIVE GROWTH 2.1 The urgency of inclusive Nigerian men and women will become of working growth age. By 2050, the population is forecast to exceed 400 million. Nigeria’s economy needs to grow twice as fast and transform to create new good jobs and As noted in Part 1, Nigeria’s growth is gradually productive earning opportunities at this enormous picking up, but it must accelerate on a sustained scale. Only if it does, will the millions of young basis to reduce poverty and meet the aspirations people joining the labor force have jobs. of Nigerians. A youthful population points to a dynamic future, From a static perspective, Nigeria’s economy needs but will also reap benefits if it can accelerate the to grow to boost incomes and meet aspirations. If demographic transition. This has been progressing Nigeria’s current annual economic output was equally slowly so far. The youth and elderly shares of Nigeria’s distributed, this would be sufficient to eliminate population changed only slowly between 1990 and poverty, but it would still leave Nigerians far behind 2020, and as a result, the dependency ratio (the ratio the global prosperity frontier. With an estimated of non-working age to working age population) population in 2024 of about 232.7 million people declined very modestly, from 94 dependents per and a GDP of N277.5 trillion, each Nigerian would 100 working age population to 85 over a 30-year have taken home N1.2 million, or about N100,000 period11. The dependency ratio is a measure of the per month, if output was divided equally. This would economic pressure that working-age individuals face imply a standard of living equivalent to almost four to support the old and the young. A more rapid times the current poverty line, a huge improvement decline would imply a larger share of the population for the close to 60 percent of Nigerians who live in being of working age and therefore in the high-work, families whose breadwinners are not able to produce high-savings part of the life cycle. This can enhance and earn enough to escape poverty. Yet, even if it the productive capacity of the economy and set the was divided equally in this way, and adjusting for stage for higher economic growth. differences in prices across countries, current annual output is not enough to make Nigerians prosperous. Nigeria is poised to seize a powerful potential Nigeria’s annual GDP per capita of $6,207 in demographic dividend, provided it makes current international dollars ranks 146th out of 191 investments in human capital in tandem with countries with data, equivalent to just 4.4 percent creating jobs and growth. Accumulation of of the per capita income of the leading country on human capital determines whether people work this measure (Singapore) or 30 percent of the leading and, if they do, how productive they are, increasing continental African country (Botswana)10. disposable incomes. At present, however, the labor force is growing faster than the economy’s ability From a dynamic perspective, the need for Nigeria’s to create more and better jobs, and human capital economy to grow faster is even more stark. Nigeria investments are lagging. Without jobs and human has a young and fast-growing population. About half capital development, too many young people will of Nigerians are 18 or younger, and the population lack opportunities, creating risks of fragility and loss is increasing by almost five million people every of social cohesion. year. In the next 10 years, almost 60 million young 10 Ranking based on GDP per capita at purchasing power parity (current international dollars), 2023 (latest data). Source: World Bank WDI. 11 The dependency ratio measures the proportion of dependents to the working-age population (those aged 15-64) to assess the burden on the working age population to support dependents. PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA 23 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Figure 2.1:. Nigeria’s youth population Figure 2.2:. … and will enormously is burgeoning… enlarge the working age population in coming decades Population pyramid (2020) Population pyramid (2050) 80+ 80+ 70-74 70-74 Male Male 60-64 60-64 Female Female 50-54 50-54 40-44 40-44 30-34 30-34 20-24 20-24 10-14 10-14 0-4 0-4 20,000 10,000 0 10,000 20,000 20,000 10,000 0 10,000 20,000 Sources: World Bank staff calculations based on UN population data https://population.un.org/dataportal/ Figure 2.3: In the decade to 2023, Figure 2.4: …resulting in declining value-added generally increased productivity in most sectors and in the more slowly than the number of economy as a whole workers… Change from 2014 to 2023 Real value-added per worker (Thousand) 100% 1,800 1,600 80% 1,400 60% 1,200 1,000 40% 800 20% 600 400 0% 200 -20% 0 14 15 16 17 18 19 20 21 22 23 -40% 20 20 20 20 20 20 20 20 20 20 Total Agriculture Industry Services Overall Agriculture Number of workers Value added Industry Services Sources: World Bank calculations based on WDI data Sources: World Bank calculations based on WDI data In short, Nigeria has a potential economic in the jobs of the future so that they are equipped powerhouse in its youth (Figure 2.1, Figure 2.2), but with the human capital to be productive and to it needs to ramp up investments in its workers and access income earning opportunities. The roots of 24 PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH today’s youth jobs challenge can be found at least 2.2 A two-part agenda for in part in the shortcomings of delivery systems a achieving rapid, inclusive growth generation ago. Future growth prospects hinge on urgently closing access and quality gaps for families in healthcare, nutrition, education, water and Building on the difficult macroeconomic reforms sanitation, and social protection. already undertaken, Nigeria could consider a two- pronged strategy for inclusive economic growth. The government recognizes the need for much faster growth. For example, the government has a First, build an enabling public sector, including stated goal of achieving a trillion-dollar economy by continuing to restore fiscal space, and spending by 2030. This would require the US dollar value of more and better on development priorities. The Nigeria’s annual economic output to increase five signature reforms have averted an outright fiscal crisis times faster than currently12. by ending the ruinously expensive, economically distorting, and regressive PMS and FX subsidies. As a result of the reforms, fiscal space is gradually To succeed, the economy has to grow at a faster being restored (Figure 2.5). Yet, public spending pace, but also in a more inclusive way. Not only on development priorities remains critically low, must the economy grow faster, but it also needs including to plug the hard infrastructure gaps to grow in such a way as to generate jobs and which constrain growth (e.g., poor transportation opportunities for the Nigerians who need it most: infrastructure and unreliable electricity), and to build the poorest and least prosperous. The enormous scale the human capital needed for a healthy, productive of the above-mentioned jobs challenge was the topic workforce (e.g., addressing the lack of access to and of the previous NDU Spotlight. This Part 2 builds poor quality of public healthcare, education, and on it by considering one crucial aspect of meeting water and sanitation). Nigeria’s jobs challenge: adopting an inclusive growth strategy to spur stronger productivity growth and Second, enable private sector development structural transformation. This is urgently needed by undertaking additional reforms, spurring to turn around a situation whereby over the decade structural transformation, and diversifying the through 2023, the pace of GDP growth (real value economy. The signature reforms are restoring added) was outstripped by labor force growth across macroeconomic stability and have dramatically the economy, except in agriculture (where it was strengthened the external position (Figure 2.6), by broadly similar) (Figure 2.3). As a result, output per ending the imbalances caused by the previous PMS worker, or productivity – the fundamental driver of and FX subsidies. However, Nigeria remains heavily incomes and earnings – fell (Figure 2.4). Even in the reliant on oil and gas exports for FX (Figure 2.7). lowest productivity sector, agriculture, output per Now, there is a window to seize the opportunity worker increased by only a modest 6.3 percent over created by a market-reflective, competitive exchange the decade to 2023. This indicates that structural rate, for the economy to diversify. This will require transformation of Nigeria’s economy is happening making changes to create an enabling environment too slowly, leaving most working-age Nigerians stuck for the private sector to invest and produce more in low-productivity, low-earning work13. in Nigeria, both to meet local demand, and to sell 12 Using 2024 GDP at current prices of NGN 277.5 trillion and assuming a constant exchange rate. 13 This note draws on the most recent World Bank Country Economic Memorandum for Nigeria (2022). PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA 25 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Figure 2.5 :. Nigeria spends far too little on development priorities Federal Government State Govt. (36) General public service… 23 31 1.6 1.2 General public service… Economic Affair s 19 22 1.1 1.0 Economic Af f air s General public service… 36 3 0.2 1.9 General public service… Education 8 14 0.7 0.4 Education Defense 15 0 0.8 Defense Health 78 0.4 0.4 Health Public Order and Safety 11 2 0.1 0.6 Public Order and Safety Social Protection 12 1 0.03 0.7 Social Protection Housing and… 1 6 0.3 Housing and… Environmental Protection 2 0.12 Environmental Protection Recreation, Cultur e… 1 0.08 Recreation, Cultur e… 0 50 100 3.0 2.5 2.0 1.5 1.0 0.5 0.0 US$ per capita % GDP Sources: PFR 2022 Figure 2.6: The macroeconomic Figure 2.7: …but non-oil exports remain reforms have strengthened Nigeria’s low external position… Current Account Balance (US$ Goods Exports (% of GDP) billion) 20000 30.0 15000 25.0 10000 20.0 5000 15.0 0 -5000 10.0 -10000 5.0 -15000 0.0 -20000 2020 2021 2022 2023 2024 2020 2021 2022 2023 2024 Crude oil and Gas Non-oil and Electricity Sources: CBN Sources: CBN products and services overseas. sector. By spending better on development priorities, the public sector would be focused squarely on The public sector has a critical role to play, by meeting the urgent needs of the population for better spending better, and by enabling the private infrastructure, public services (education, health), 26 PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH and security. In doing so, as well as by reforming alone – although critical to underpin confidence in the policy and regulatory environment in which the economy – may not be enough to trigger the firms operate, it can create enabling conditions for needed surge in investment and economic activity. the private sector to invest and grow. This is vital, Instead, deepening and widening reforms can have because the public sector remains fiscally- and transformative effects, as international evidence capacity-constrained, and so cannot itself directly demonstrates (Table 2.1). drive mass formal job creation. It can, however, equip the population to get jobs and seize economic opportunities, and create conditions conducive to large-scale private investment. In the absence of these changes, improved macroeconomic stability Table 2.1: Comprehensive and ambitious reforms have substantially accelerated investments and growth across countries Output Growth Country Episode Fiscal policy Monetary policy Structural policy External environment During Outside Central bank Trade liberalization; financial 7.6 3.4 independence (1989); Rising copper prices in Chile 1986-93 Fiscal consolidation sector deepening (banking (7.1) (3.4) adoption of inflation the late 1980s reforms) target (1990) Fiscal consolidation; Increased exchange rate Rising oil prices; structural tax flexibility; strong global growth 4.5 3.3 reforms; SOE and adoption of inflation Enhanced trade linkages; Colombia 2001-07 and (4.7) (3.4) public investment target (1999); financial sector deepening supportive global management enhanced central bank financial conditions reforms independence Ended most public sector monopolies; Fiscal consolidation; 6.8 5.2 Increased exchange rate capital account and trade India 1994-99 structural tax Solid global growth (7.1) (6.1) flexibility liberalization; reforms reduced state control of banking and insurance Fiscal consolidation and rules (balanced Trade liberalization (reduced budget principle); import restrictions); Korea, 9.3 4.0 Ended central bank 1985-96 institutional fiscal reduction in price controls; Rep. (9.4) (3.3) financing of government improvements competition reforms (Monopoly (establishing a Regulation and Fair Trade Act) budget council) Enhanced central bank Liberalization of capital markets independence; Fiscal consolidation (reduced FDI restrictions); Strong global growth Korea, 1999- 6.3 4.0 increased exchange rate (especially lower corporate governance reforms and supportive global Rep. 2007 (5.3) (3.3) flexibility; spending growth) & restructuring of financial financial conditions adoption of inflation corporations targeting (1998) Trade liberalization (trade Fiscal consolidation; agreements with the EU and Strong global growth 1996- 5.0 3.2 Reforms to balance fixed Morocco structural tax U.S.); reduction in price controls and supportive global 2009 (5.4) (4.0) exchange rate reforms and subsidies; financial sector financial conditions deepening (better access to credit) Structural tax 9.2 3.4 Financial sector deepening (better Malaysia 1988-97 reforms (revenue Currency devaluation (9.2) (5.4) access to credit) collection focus) PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA 27 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Privatization of state-owned Reduction of Increased exchange rate enterprises; trade liberalization inefficient subsidies; flexibility; monetary (joined GATT and signed multiple 1992- 5.0 -0.7 SOE management tightening (curbing excess Paris Club debt Poland trade agreements); capital account 2000 (4.7) (1.3) reforms; structural credit growth); adoption forgiveness liberalization; banking reforms tax and entitlement of inflation targeting and recapitalization; competition reforms (1998) reforms Accession to the EU Targeted tax Financial sector deepening; in 2004; strong global 4.9 -0.7 reductions to Increased exchange rate Poland 2003-08 alignment of many policies and growth and supportive (4.6) (1.3) promote flexibility regulations to the EU global financial investment conditions Privatizations and corporate Fiscal consolidation restructuring; business climate Strong global growth 6.2 3.7 Central bank Türkiye 2003-08 and rules (primary improvements; trade liberalization; and supportive global (6.4) (4.9) independence (2001) surplus target) labor market liberalization; financial conditions banking reform Privatizations and SOE reforms; Banking reform; trade HIPC and Multilateral 1993- 7.4 4.2 institutional fiscal Increased exchange rate Uganda liberalization; business climate Debt Relief; 2012 (7.1) (4.7) improvements flexibility improvements development assistance (establishing Uganda Tax authority) Increased exchange rate 4.5 0.0 flexibility; Trade liberalization (MERCOSUR Reduced external debt Uruguay 1991-98 Fiscal consolidation (4.7) (0.8) limited central bank regional trade agreement) through Brady plan financing of government Elevated agricultural Institutional fiscal Increased exchange commodity prices; improvements rate flexibility; 5.4 0.0 Banking reform; business climate improving regional trade Uruguay 2004-14 (improved public enhanced central bank (5.0) (0.8) improvements integration; supportive balance sheet independence; adoption of global financial management) inflation targeting (2005) conditions Sources: Global Economic Prospects, January 2024 Notes: All numbers are average growth rates in percent with median growth rates in parentheses for the respective acceleration years, or all non-acceleration years in a country since 1980. “During” refers to statistics for the acceleration years between 1980-2022. “Outside” refers to statistics for all non-acceleration years over the same period. 2.3 Building an empowering public single instrument (and is inefficient as a result), adds sector to debt rollover risks, and is very costly. Narrowing the interest rate corridor would also help to strengthen Continuing to improve macro-fiscal the transmission of monetary policy to short-term policies and institutions market interest rates and promote financial market Maintain and build upon improved deepening, which is currently also constrained by macroeconomic policies. With inflation still high, high CRR levels. Recent steps to improve CBN’s consumers’ purchasing power and firms’ profitability balance sheet transparency by publishing the financial are being eroded. This weighs on consumption and statements and disclosing net reserves are laudable. investment. To reduce inflation, it is critical for the In the area of exchange rate policy, efforts to foster CBN to maintain tight monetary policy, and to transparency and liquidity in the FX market should continue to improve the implementation of monetary continue, including developing, communicating and policy. OMOs should be open for domestic market implementing a systematic approach to the CBN’s participants only and offered at much shorter tenors, interventions. as the current approach segments the yield curve, attempts to achieve different policy objectives with a Continue improving the fiscal position and overall 28 PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH public finance management. Maintaining the to complement tight monetary policy and restore revenue-driven fiscal consolidation underway since confidence in the naira and macroeconomic stability. 2024 is essential, so that the overall macroeconomic policy mix is coherent and conducive to restoring To spend better, Nigeria should reorient its public price stability and confidence. Although much resources towards meeting its development goals, improved, revenues remain low, constraining and to facilitate this could consider a compact development spending. This makes it urgent between the Federal Government and States. The and critical to sustain public revenue policy and 36 States and FCT are responsible for a large share administration improvements, as well as ensuring of spending on essential public services, and human that revenue gains from the removal of the PMS and physical capital investment. A compact could subsidy flow to the Federation. Also, fiscal flows enshrine spending commitments that, collectively, and the overall fiscal position remain opaque. The would strengthen the allocative efficiency of adoption and implementation of rules for systematic, spending, such as by setting minimum spending timely fiscal reporting, and of institutional guidelines on primary healthcare and basic education (e.g., as for the FAAC, would significantly improve fiscal a percentage of total actual spending). Funding to transparency and accountability. There is also BHCPF and UBEC could be scaled up. Performance- scope to improve cash management (e.g., by based financing, such as through matching grants, consolidating flows into the consolidated revenue as well as coordinating skills development to align fund, and establishing a consolidated daily view with local skills demand by the private sector could of the cash position), improve debt management be considered14. A compact could also commit the (e.g., by adopting annual borrowing plans, and Federation to improving how the FAAC functions institutionalizing liability management operations), and ensure that a sufficient proportion of resources is and to improve the public finance audit function channeled towards meeting development goals. Ideas (e.g., by passing an audit law and clearing the backlog could include capping non-statutory deductions, of audited financial statements). and publishing FAAC data and documents from participating agencies (for transparency and Spending better accountability). With fiscal space being repaired thanks to macro- fiscal reforms, Nigeria has a historic opportunity 2.4 Enabling private sector to spend better and improve human capital, social development protection, and infrastructure. Previously, Nigeria was facing escalating risk of entering a full-blown fiscal crisis, and the fiscal space for development Providing a conducive environment spending was being exhausted by the unsustainable and setting the right incentives for businesses to grow macro policy mix including PMS and FX subsidies. Now, with the fiscal situation improving and more The private sector needs both the conditions revenues flowing to the Federation, Nigeria has a and the incentives to invest, create productive golden opportunity to direct its public resources jobs, and increase Nigerians’ purchasing power. to meet development objectives. This should be Macroeconomic stability is a pre-requisite for done within the overall context of continuing to businesses to invest with sufficient predictability of maintain fiscal discipline, as this remains essential their return in the longer term. Yet, this is not sufficient 14 See Hendra et al. (2016), McKenzie (2017), and Grundke et al. (2021) PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA 29 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Figure 2.8:. Businesses face high Figure 2.9: …and weak competitive constraints to investment… pressure Risks to business profitability (0-lowest, 4-highest), 2004 Concentration levels in select manufacturing and service sectors [Herfindahl-Hirsschman Index (HHI ) score] Road Network 6500 Retail And Distribution… 6000 "Highly consentrated" 5500 threshold ( 2,500) Rail Network 5000 Power Network 4500 Port Facilities 4000 Sp ecialised Labour 3500 Skilled Labour 3000 Dep th Of Financing 2500 Prot ection Of Private… 2000 Enforceability Of Contracts 1500 1000 Excessive… 500 Quality Of Bureaucracy Brewing Mobile Prepaid Flour Milling Mobile 3G services Sugar milling Cement Production Mobile 4G Services Mobile 2G Services fertilizer production Ammonia-based Corrupt ion Services 0 2 4 Average Comparators Nigeria Sources: EIU Sources: Sugar and flour data as of 2016 https://journalissues.org/ Notes: Comparators are Egypt, Ghana, India, Indonesia, South wp-content/uploads/2017/06/Ofonyelu.pdf ; Fertilizer data as of Africa 2015, IFDC database; Cement data of 2015/16, Cement Database; Mobile services data of Q2 2021, GSMA intelligence; Brewing data as of 2018 http://www.unitedcapitalplcgroup.com/wp-content/ uploads/2018/08/INTBREW-coverage-initiation-Report1.pdf Note These HHIs do not include import amounts which can apply competitive pressure to domestic industries. Based on the HHI, the concentration levels are classified as follows: 1) Unconcentrated markets: HHI below 1,500, 2) Moderately concentrated markets: HHI between 1,500 and 2,500, 3) Highly concentrated markets: HHI above 2,500 (Horizontal merger guidelines 2010; U.S. Department of Justice and Federal Trade Commission). on its own. For businesses to turn a profit, they need the poor and increasing disposable income, also reasonable access to infrastructure, skills, finance, creating a virtuous cycle by driving up consumption intermediate inputs, and large markets to sell their and firms’ incentives to invest to supply a growing products. Although Nigeria has the potential to offer market. However, several markets in Nigeria present many of these conditions, it currently does a worse a high degree of concentration, consistent with weak job in providing a conducive business environment competitive forces, and policies in some areas are than its peers (Figure 2.8). In parallel, markets also skewed towards protecting incumbents (Figure 2.9). need to be contestable to keep businesses on their toes, and create a virtuous cycle where they invest Improving access to and quality of infrastructure to become more productive and expand in domestic is a priority area for policy reform, as inadequate and foreign markets, in turn, increasing the returns infrastructure is consistently cited by firms as one to further investments15. This process generates more of the key constraints to doing business. Access and better jobs, as well as lower prices, benefiting to transportation allows businesses to source inputs, 15 For international evidence, see, for instance, Pavcnik (2002), Aghion et al. (2004), Bloom and Van and Reenen (2007), and Amiti and Khandelwal (2013). 30 PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH Figure 2.10: Market integration Figure 2.11: Access to power is similarly is markedly low, constraining limited, as well as unreliable businesses and regional development Area standardized nightlight level (NTL/km2, 2023) the top 10 Road accessibility to the top 10 major cities major cities Sources: Global Friction Surface 2019 Sources: World Bank - Light Every Night expand product markets, and reap economies regulatory framework with clarity on institutional of scale16. Yet, large areas of Nigeria are poorly roles and responsibilities across the project cycle, as connected to major economic centers, while these well as measures to strengthen public investment are also not very well integrated to one another management, could help alleviate these constraints. (Figure 2.10). Inter-state fees for moving cargo In the power sector, moving towards eliminating and roadblocks further limit integration. Beyond the electricity subsidy, whilst protecting poor constraining individual firms, this hinders regional households, and increasing the mini grid permit cap, and sectoral development, notably in agriculture; could be first steps to improve supply (see further for example, shortcomings in transport, handling details on energy reforms in the last section, below). and storage cause half of tomatoes produced in Nigeria to be lost17. Access to power is similarly Another key input for new firms to enter markets restricted geographically, covering only 61 percent and for existing firms to grow is capital, so of the population as of 2023 (Figure 2.11). Even improving access to credit is also key18. With low among those connected to the grid, 80 percent and oil sector-concentrated private investment, and of them have six or less hours of electricity per meager public investment, Nigeria needs to better day. The government has large arrears related to allocate its limited naira resources, as well as attract tariff shortfalls, constituting a remaining subsidy foreign capital and Nigerians’ savings allocated in which is costly and highly regressive, as it benefits foreign assets. Domestically, credit to the private mainly the largest electricity consumers. Providing sector is much lower than peers, at 13 percent of a unified public private partnership (PPP) legal and GDP and only a small share of firms have access to 16 For international evidence, see, for instance, Ghani, Goswami and Kerr (2016), Banerjee, Duflo and Qian (2020), and Bueno (2022) 17 See Nigeria Food Smart Country Diagnostic (2020) 18 See, for instance, Buera, Kaboski and Shin (2011) PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA 31 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Figure 2.12: Domestic credit to the Figure 2.13: ...while FDI is low and private sector is lower than peers… falling; increasing it would boost investment and innovation, and so, growth and jobs Domestic Credit to Private Sector ( % Foreign Direct Investment (percent of of GDP) 4 GDP) Malawi 3.5 9% 9% 3 Nigeria 13% 13% 2.5 Ghana 13% 15% 2 Uganda 15% 15% Mozambique 21% 1.5 30% Kenya 31% 1 31% Senegal 32% 0.5 33% 0 34% Indonesia 35% -0.5 39% Phil ippines 49% -1 71% South Afri ca 92% 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 20 1 20 2 23 1 1 1 1 1 1 1 1 1 1 2 2 2 20 Low and Middle Income 129% NGA CIV IDN PHL -10% 40% 90% 140% Sources: WDI 2022 Sources: WDI credit lines (Figure 2.12). Part of the solution is to Furthermore, given Nigeria’s large and significant continue with the macro-stabilizing policies, as these informal private sector, the availability of credit risk will lower inflation and hence the cost of credit, as rating schemes that generate data will help lenders well as free up capital to flow to the private sector make informed credit decisions. Such schemes will instead of the government. In addition, regulatory also encourage the broader MSME segment to get improvements can help to enable credit to be rated, thus opening up capital market opportunities, provided in underserved market segments, notably an untapped alternative source of finance. micro- small- and medium-enterprises (MSMEs). These include revisions to the microfinance To spur healthy competition, investment, and banks (MFBs), development finance institutions innovation, it is important for markets to be (DFIs), credit guarantee companies (CGCs), and open to new entrants, and that firms face a level Finance Companies (FC) guidelines. Introducing playing field and predictable government-to- technology-enabled risk-based supervision whilst business services19. Yet, policies and regulations strengthening consumer protection mechanisms in to promote stable, market-based competition are the banking sector is also key. Fostering stronger significantly weaker in Nigeria than in peer countries partnerships between commercial banks and MFBs (Figure 2.14). This calls for further institutional with FinTech companies will help to reduce risks and strengthening and independence of the competition transaction costs through data and tailored solutions. authority (FCCPC). Effective implementation of the 19 For international evidence, see, for instance, Bertrand and Kramarz (2002), Arnold, Javorcik and Mattoo (2011), and Adalet McGowan, Andrews and Millot (2017). 32 PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH Figure 2.14: Businesses are shielded Figure 2.15: … including from foreign against competition… firms, which also increase input prices Applied tariff, weighted average (percent) 18 15.8 16 16 14 11.6 12 9.5 10 8.7 8.4 8 6 4.8 5.1 3.9 4 2.1 3.2 1.8 2 1.6 2 1 0.8 0 Consumer Intermediate Cap ital Raw goods goods goods materials Nigeria Indonesia South Africa Kenya Sources: BTI Sources: WDI Business Facilitation Act (2022), which was signed of others, and imposes many non-tariff barriers. The into law in 2023, and similar efforts in the states, average tariff rate in the country is twice as high as could help in the transparency and predictability of the sub-Saharan average (Figure 2.15). Yet, with government-to-business services. Similarly, removing the exchange rate now much higher, Nigerian firms barriers for foreign firms to operate in Nigeria, such as should be able to more easily produce and compete the requirement to incorporate a domestic business, with imports domestically, as well as exploit profitable would stimulate entry and competition. Increasing export market opportunities. To produce more foreign direct investment, currently lower than and export more competitively, Nigerian firms also one percent, is crucial to tap into foreign savings, need to import, including intermediate goods and expertise, and technology, as well as to integrate services20. Reducing tariffs and import bans would to global value chains and create higher-quality confer direct benefits to consumers, giving them jobs. Lifting restrictions for FDI has had positive access to more products at lower prices, lowering impacts on investment in other countries, like India, inflationary pressure, boosting their purchasing Vietnam, and Indonesia. power, and offering relief in the context of high cost of living pressures21. Import bans increase prices The government should consider seizing the by an estimated 5.8 percent on average in Nigeria, opportunity created by the market-reflective, particularly for products more intensely consumed competitive exchange rate, to reorient trade policy by poorer households, such as food and medical for growth and jobs. Nigeria maintains higher than products (Figure 2.16). Lifting import bans could average tariffs on many products, bans the imports lower poverty rates by estimated 2.6 pp. Similarly, 20 For international evidence, see, for instance, Amiti and Konings (2007) and Bustos (2011) 21 For international evidence, see, for instance, Porto (2006) and Arnold and Bueno (2018) PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA 33 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Nigeria applies large deviations from the ECOWAS air, land and sea borders, risk management and common external tariffs (CET), including for many compliance-based criteria for conducting targeted food products, increasing their prices by similar inspections should be adopted. The removal of magnitudes (Figure 2.17). Finally, import bans and inter-state fees related to the movement of cargo is excessively high tariffs increase evasion (Figure 2.18 critical, as they are unnecessary and often result in and Figure 2.19). Lifting them could increase current illegal roadblocks. This could decrease the high cost customs revenues by 66 percent, contributing to the of domestic trade and reduce delays in the inter-state ongoing fiscal adjustment. movement of cargo. Unleashing the potential of important In addition to trade policy, trade facilitation sectors measures could help Nigerian firms access new markets, and help firms and consumers obtain In general, governments have a poor record when products. Implementation of the National Single it comes to “picking winners” and successfully Window (NSW) can provide a new single point predicting which firms and sectors will succeed. At of contact for firms’ international trade activities, present, Nigeria’s public finances, though improving, which holds the promise of eliminating duplication, also remain stretched, making it inadvisable to allocate reducing costs by streamlining licenses, certificates scarce public resources towards supporting particular and other permits, and reducing delays. Moreover, sectors. However, this does not mean that there is the requirement for mandatory pre-shipment export not a role for the public sector to play in bridging inspections could be re-evaluated. At Nigeria’s gaps in the operating framework of important Figure 2.16:. Import bans increase Figure 2.17:. Tariff deviations from the prices by 5.8 percent on average and ECOWAS CET are also particularly apply to products more intensely large and increase food prices consumed by the poor Share of consumption of goods subject to import bans across the per capita Non-alcoholic Beverages 80% expenditure distribution Salt (T able Salt) 60% Raw Beet Sugar 50% 45 Raw Cane Sugar 60% Wheat or mes lin flour. 50% Milled rice 50% 40 Mayonnais e 30% Tomato pas te 10% 35 Margarine 20% Cassava (Manioc) 15% Tomato concentrate 20% 30 Malt extract 25% Brown Rice (Hus ked) 20% Dorum wheat 15% 25 Cane sugar 5% 0% 20% 40% 60% 80% 100% 20 9 10 11 12 12 13 14 ECOWAS CET Deviation Sources: World Bank Sources: FMOF 34 PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH Figure 2.18: Import bans also increase Figure 2.19: Similarly, goods subject evasion, lowering customs revenues to higher tariffs see more evasion, by at least 10 percent and removing these could increase customs revenues by 66 percent 14 Evasion by tariff (Tariff, X-axis; Evasion, Y-axis) 12 4 10 Log Imports 8 3 6 2 4 1 2 0 0 Banned products Non-banned 0 10 20 30 40 products Log (1+ mirror imports) Log (1+ imports) Evasion Linear (Evasion) Sources: World Bank Sources: World Bank sectors, by improving sector-specific regulation, as prices. Similarly, more could be done to improve the well as by helping to overcome coordination and availability and quality of seeds, by investments in lack of information problems. Putting appropriate breeder seed production, seed multiplication, and policies in place and effectively implementing them the production of certified seeds, and by fostering can unleash their potential. a wide network of agri dealers. Rather than direct seed subsidization and distribution, the public Agriculture stands out as a sector where Nigeria sector could help to scale up the use of seed varieties has great productive potential, and where progress that have already been developed by national and would be transformative in terms of creating better international research institutes, in partnership jobs at scale, as well as tapping external markets and with the private sector. An important step in this diversifying from oil. The sector is also key to the direction would be to effectively implement the urgent priority of addressing the high prevailing level reforms envisaged under the National Agricultural of food insecurity in Nigeria. Seed Council Act (2019). To significantly increase productivity in Many of the economy-wide reforms discussed agriculture, access to quality, critical inputs can above would also be particularly beneficial be improved. The market for fertilizer, for example, to the agricultural sector. Priorities include is tightly regulated. Effective implementation of the reducing the high internal and external trade National Fertilizer Quality Control Act (2019) and barriers, decreasing insecurity, improving access to deregulation of the fertilizer sub-sector could reduce connecting infrastructure (feeder roads, warehouses, PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA 35 NIGERIA DEVELOPMENT UPDATE | MAY 2025 storage) and irrigation. To unlock access to finance and clean. Mini grid permit caps could be increased for farmers and agribusinesses, a range of financial from 1MW to 5MW, and regulations put in place products, including working capital and longer- to enable distributed and connected photovoltaic term finance for lumpy investments will be needed. power. Potential solutions include leveraging Agri-Tech and FinTech data, digital platforms, and contract Nigeria’s economic performance can also be farming; bridging information gaps with alternative accelerated through digital services, building on data on farming yields, geo-localization, and digital already rapid growth in ICT. A National Digital payments; developing financing based on agriculture Economy and E-governance Bill to set standards credit scoring; using securitization of agriculture for electronic transactions (e.g. legal recognition assets; and developing instruments to derisk the of electronic signatures, including interoperability agricultural production such as credit guarantee with international systems), digital records mechanisms, agriculture insurance, warehouse management, online consumer protection, and receipt finance. cross-border digital trade facilitation. Executing and monitoring the Designation and Protection of CNII It is also important to plug in coordination and Order, designating telecom networks as critical information gaps for Nigerian producers. Public national infrastructure, could minimize incidents sector efforts to collectivize farmers by building of vandalism, theft, and extortion. Legislative strong farmer organizations and connecting them improvements could also include strengthening the with private sector aggregators and processors Nigerian Communications Act to require NCC across key value chains would be critical. Adopting to conduct market analysis and enforce regulatory standards and establishing regulations to ensure safeguards towards dominant operators, as well as traceability and quality are priorities to safeguard adopting. and expand opportunities for farmers involved in the value chain for cocoa and other products. Similarly, 2.5 Reform implementation, rolling out digital farmer and farm registries in starting with an inclusive growth partnership with the private sector will not only plan help establish traceability of agro-food products, but could potentially also help farmers access satellite Having undertaken difficult macroeconomic technologies for real-time weather, agronomic, and reforms, Nigeria stands at a pivotal juncture where soil advisories. the potential for inclusive economic growth is within reach. By continuing to build an enabling Another growth-critical sector where there is a public sector and undertaking additional reforms to yawning gap between Nigeria’s needs and current spur structural transformation, Nigeria can create production is energy. On-grid electricity capacity a more inclusive economy that generates jobs and of about 5,000MW is a small fraction of demand opportunities, especially for the poorest. Maintaining currently being met by expensive and polluting sound macro-fiscal policies, spending better on generators. The elimination of the PMS subsidy development priorities, and creating a conducive has for the first time confronted Nigeria with the environment for private sector development will be actual, expensive cost of meeting electricity needs crucial. Table 2.2 lays out a summary of such a reform in this way, and opens a unique opportunity for agenda to drive inclusive growth. Implementation of investments to supply solar power, more efficient the inclusive growth agenda could be facilitated by 36 PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH adopting a tangible growth plan, including specific Nigeria’s fractious politics and shifts in the balance actions and key milestones. As well as bridging the of power. Nigeria will also need to overcome the gap between the government’s high aspirations and pressures of competitive politics to ensure allocative the need for near-term, concrete measures would efficiency of hard-won revenues. This means clarify the path forward, boosting transparency and resisting budget padding and opaque allocations in policy certainty, and thus also helping to build the favor of significantly increasing investment in the confidence upon which increased private investment development of human capital through better access and higher growth relies. to quality education and health and institutionalizing social safety nets. The welcome increase in capital The new direction of policies creates an opening spending allocations must be accompanied by fiscal for inclusive growth, and progress on the realism and efficient public investment management measures below will help to unleash the private practices. In this sense, Nigeria has only just sector. In addition, Nigeria will also need to make embarked on the path of growth through better more progress in tackling governance challenges. economic management and use of its oil wealth; The macroeconomic policy mix is now much more staying the course, and enhancing its systems of supportive of confidence and investment. The end of governance to enable the economy to flourish, will the opaque subsidies and arbitrage opportunities for be a multi-year process. connected parties created by the previous multiple exchange rate system should also help reorient the private sector towards productive economic activities. Nevertheless, existing and prospective firms still face a challenging operating environment, due to Nigeria’s complex political economy and weaknesses in governance. For example, important areas of the economy exhibit signs that powerful interests are able to unfairly benefit from public resources, and influence decision-making. Regulatory uncertainty is high, partly due to these challenges as well as Table 2.2: A reform agenda for inclusive growth in Nigeria GOAL RATIONALE REFORMS 1. Building an Empowering Public Sector 1.1. Improve macro-fiscal policy and institutions Consolidate monetary, Inflation is still high, hurt- • Maintain a tight monetary policy trade, and FX policy re- ing especially the poor, and stance until a sustained disinflation forms weighing on consumption path is achieved and investment • Further strengthen the monetary poli- cy implementation framework • Phase out import bans and align tariffs to ECOWAS common external tariffs, beginning with food products • Implement the AfCFTA agreement and its protocols PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA 37 NIGERIA DEVELOPMENT UPDATE | MAY 2025 GOAL RATIONALE REFORMS Improve public finance Revenues are still low, • Ensure that revenue gains from the management constraining development removal of the PMS subsidy flow to the spending Federation • Launch and implement the tax E-invoicing system • Launch and implement a centralized risk-based tax audit selection system • Improve excise tax administration by implementing a track and trace system • Adopt a new framework for health taxes which raises the rates and strengthens excise administration • Reform the VAT regime • Reduce the cost of collection of revenue agencies Fiscal flows and the overall • Publish reconciled monthly fiscal re- fiscal position remain opaque ports and quarterly budget implemen- tation reports on time • Clear the backlog of audited financial statements for 2021-2023 • Publish raw FAAC data and documents from all agencies • Improve transparency in accounting for oil revenues by conducting a forensic audit of NNPCL, and adopting stan- dardized reporting to FAAC Weak cash management • Ensure that all debt proceeds are reduces transparency and directly transferred to the Consolidated raises fiscal risks Revenue Fund • Complete TSA implementation to establish a consolidated daily view of the fiscal position Debt management would • Institutionalize annual borrowing plans benefit from being more • Institutionalize a Liability Management transparent and predictable Operations Framework • Publish quarterly debt reports and yearly DSAs 38 PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH GOAL RATIONALE REFORMS 1.2. Spending better on development priorities: human capital, social protection, and infrastructure Improve human capital Low spending and efficiency • Shift spending towards spending on gaps on human capital basic education, primary health care, development hinder nutrition, and infrastructure, while Nigerians to fully realize ensuring that spending efficiently their capabilities and escape translates into improved outcomes poverty traps Improve social protection With more than half of the • Rapidly roll out the already initiated population below the poverty cash transfers line, poor and economically • Reallocate a share of recent revenue insecure households need gains to targeted social assistance assistance to regain economic • Make up-to-date social registries agency and cope with shocks with verified digital identification the platform for targeting pro-poor social programs Improve infrastructure Enhancing infrastructure • Move towards eliminating the access and quality needs more electricity subsidy, whilst protecting and better public investment poor households, to make room for investments in the sector • Strengthen Public Investment Management 2. Enabling Private Sector Development 2.1. Providing a conducive environment and the incentives for business to grow and create jobs Facilitate private investment Private sector participation • Adopt a unified PPP legal and in infrastructure in infrastructure provision regulatory framework is key to overcome fiscal • Develop enabling regulations for constraints and improve distributed and connected PV investment efficiency generation • Increase the mini-grid permit cap from 1 MW to 5 MW Increase business dynamism An unlevel playing field • Lift requirement for foreign firms to and investment and barriers to foreign firms incorporate as Nigerian legal entities contribute to high market when entering the country concentration and limited • Implement the Business Facilitation contestability, weakening Act (2022) the incentives to invest and • Strengthen capacity and independence create jobs of the competition authority (FCCPC) PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA 39 NIGERIA DEVELOPMENT UPDATE | MAY 2025 GOAL RATIONALE REFORMS Expand foreign market Limited access to large • Remove mandatory pre-shipment access product and input markets inspections on exports restricts businesses’ • Implement the National Single competitiveness and growth Window and risk-based border management • Enhance the National Quality Infrastructure system Increase access to finance Access to finance to the • Update the regulatory and supervisory private sector is low and guidelines for MFBs, DFIs, CGCs, hinders investment, and FCs including for MSMEs • Review the rules, requirements, timing and costs for listing on the stock exchange • Develop tailored financial instruments such as securitization of receivables, MSME debt funds and specialized bonds 2.2. Unleashing the potential of important sectors Modernize and Expand Agricultural productivity • Ensure effective implementation of the Agriculture has declined, and the sector reforms envisaged under the National has not transitioned to off- Agricultural Seeds Council Act (2019) farm agribusiness and the National Fertilizer Quality Control Act (2019) • Ensure that farmers, farmer organizations and the private sector are connected along value chains • Develop digital farmer and farm registries and increase certification capacity • mprove extension service delivery by scaling up both private sector and community driven models in addition to public sector extension • Foster stronger partnerships between commercial banks and MFBs with FinTech companies to reduce risks and transaction costs through data and tailored solutions 40 PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA BUILDING MOMENTUM FOR INCLUSIVE GROWTH GOAL RATIONALE REFORMS • Following the cessation of CBN’s development finance interventions, provide guidance to the financial industry on market-led agricultural credit and encourage the adoption of customized lending instruments for farmers and processors • Expand availability of risk sharing mechanisms to derisk and advance lending to farmers and agri-businesses Develop the digital services Digital services could • Adopt a National Digital Economy industry increase productivity and and E-governance Bill raise incomes, especially • Lower investments costs and facilitate with a young, English- green field telecom infrastructure proficient population deployments through implementation of the National Economic Council (NEC) commitment to a maximum of N145 per meter rights of way (Row) fees on State level • Strengthen the Nigerian Communications Act to require NCC to conduct market analysis and enforce regulatory safeguards towards dominant operators • Execute and monitor the Designation and Protection of CNII Order, designating telecom networks as critical national infrastructure PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA 41 NIGERIA DEVELOPMENT UPDATE | MAY 2025 References Bloom, N., & Van Reenen, J. 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PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA 43 NIGERIA DEVELOPMENT UPDATE | MAY 2025 Annex 1: Nigeria Key Economic Indicators 2021 2022 2023 2024e 2025f 2026f 2027f Real Economy Annual percentage change, unless stated otherwise GDP (current LCU, billions) 176,076 202,365 234,426 277,494 322,074 369,412 424,548 GDP per capita (US$) 1,984.7 2,140.4 1,612.6 808.8 820 856 910 Real GDP per capita growth 1.0 0.7 0.3 0.8 1.0 1.1 1.2 Real GDP Growth 3.6 3.3 2.9 3.4 3.6 3.7 3.8 Agriculture 2.1 1.9 1.1 1.2 1.6 1.8 2.1 Industries -0.5 -4.6 0.7 2.4 2.4 1.9 1.8 Industry - oil -8.3 -19.2 -2.2 5.5 3.3 -0.6 -1.8 Industry - non-oil 4.4 3.3 2.0 1.2 2.0 2.9 3.3 Services 5.6 6.7 4.2 4.7 4.7 4.9 4.9 Prices Annual percentage change, unless stated otherwise GDP deflator 10.1 11.3 12.6 14.5 12.0 10.6 10.7 CPI Inflation (yearly average)1 10.4 12.2 17.9 26.6 22.1 18.5 15.9 Oil Price (Bonny light, US$/bbl) 65.5 104.6 85.2 84.8 60.0 65.0 67.0 Exchange Rate (avg, N/$) 410.3 428.2 644.7 1,490.0 .. .. .. Fiscal Accounts Percent of GDP, unless stated otherwise Revenues 6.4 6.6 7.2 11.5 11.5 13.0 12.8 Expenditures 12.6 11.1 12.6 14.5 15.9 16.3 15.8 Primary fiscal balance -3.6 -1.4 -2.0 0.2 -0.7 0.3 -0.1 Overall fiscal balance -6.3 -4.4 -5.4 -3.0 -4.5 -3.3 -3.0 Public debt 33.5 35.0 45.0 53.2 55.1 54.0 52.4 External debt 9.9 9.3 16.3 26.3 28.5 32.1 34.7 Domestic debt 23.6 25.8 28.7 26.9 26.6 21.9 17.8 Public debt with arrears 2 39.0 40.4 49.6 57.9 59.2 57.5 55.5 Balance of payments Percent of GDP, unless stated otherwise Current account balance -0.8 0.7 1.6 9.2 7.3 9.4 8.9 Trade balance -3.9 -1.7 -1.4 -0.1 -4.0 -1.4 -1.3 Exports of goods and services 11.8 14.6 16.6 30.9 21.7 23.8 22.9 Imports of goods and services -15.7 -16.3 -18.0 -31.0 -25.6 -25.2 -24.3 Primary income -2.0 -2.2 -3.0 -3.6 -1.3 -1.1 -1.0 Secondary income 5.1 4.6 6.1 12.9 12.6 11.9 11.2 Net Foreign Direct Investment 1.2 -0.2 0.6 0.8 0.8 0.6 0.7 Net Foreign Portfolio Investment 1.3 0.9 1.8 7.3 10.5 10.8 10.6 Gross Reserves (million US$, eop) 41,181 37,194 32,912 40,880 .. .. .. Gross Reserves (months of imports) 7.3 5.8 6.0 8.5 .. .. .. 22 The CPI series reflects World Bank calculations on the back-casted series following CPI rebasing by the NBS. 23 The arrears include electricity subsidy arrears, AMCON liabilities and explicit guarantees. 44 PART 2: A REFORM AGENDA FOR BOOSTING INCLUSIVE GROWTH IN NIGERIA Nigeria Development Update May 2025 View this report online: www.worldbank.org/en/country/nigeria Cover photo is AI generated. It aims to depict a story of building mo- mentum